Investing in Property Tax Liens and Deeds

Investing in property tax liens and deeds are attractive real estate options because they can be acquired with minimal funds. 

Many investors who self-direct their IRAs choose these alternative assets because they are somewhat easy to acquire and manage, and they have the potential to earn a desirable return on the initial investment.

Tax Lien Investing

Tax liens are attached to property when the owners fall behind in paying taxes on that property. Once a lien is in place, the owner is unable to sell or refinance an existing mortgage until the lien is paid in full. If the lien is not paid in a timely manner, governing agencies are able to sell these liens, usually via online or live auction. Investors who win the bid then pay the tax (plus late fees and interest) and turn around and offer the property owner an extended period of time to repay the lien.

Late fees and interest are also applied to an amount and term set by the investor, which is how investors earn income on these assets.

Tax lien investment options can offer steady returns until the note is paid in full. In case of default, the investor takes ownership of the property and can sell it outright, providing yet another way to earn income.

Tax Deed Investing

Tax deeds work much like tax liens in the event property taxes are in arrears, but with one critical exception.

In these cases, when property taxes become overdue after missing one or more payment dates, the government or municipality can take immediate ownership of property. Tax deeds are then sold at auction, and the investor with the highest bid wins the prize—ownership of that property. At this point, the investor can negotiate a note to any inhabitants of the property to seek repayment and income through interest assigned to the note. Or, the investor can sell the property for a quick return.

Tax deed investing has the potential to garner quick and desirable returns in the right circumstances.

Investing with IRA Funds

When you use retirement funds to invest in either of the above options, the liens and deeds are purchased by the IRA and are owned by the IRA. All income and expenses attached to the asset flow directly into and out of that account.

Advanta IRA oversees many of these transactions every year for our clients. Our staff is experienced and knowledgeable in ensuring the administrative details of investing in tax liens and deeds are performed in compliance with the IRS. While these investments have the potential to offer solid returns, as with any investment, due diligence is key, and seeking the appropriate advice from professionals is advised.


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