For many investors, diversification means more than just balancing stocks and bonds. Alternatives like private real estate, tax liens, and private equity have become important tools for building resilient portfolios. But among these, tax deed investing in Texas stands out for its unique structure and return potential.

This article compares tax deed returns with other forms of alternative investing, highlighting both opportunities and risks for those seeking new ways to diversify.

Understanding Tax Deed Returns

In Texas, counties sell properties with unpaid taxes through tax deed auctions. Investors bid for ownership, and the original owner may have a limited redemption period to reclaim the property by paying penalties.

Those penalties often 25% in the first year and higher in the second year for homesteads translate into structured returns for investors if redemption occurs. If redemption doesn’t occur, the investor may take ownership of the property itself.

This dual path either structured returns or discounted property ownership makes tax deed investing different from most other alternatives.

Comparing Tax Deeds with Other Alternatives

1. Tax Lien Investing

• Returns: Interest rates vary by state but are often lower than Texas deed redemption penalties.
  
• Risk Profile: More predictable but less potential upside.
  
• Liquidity: Certificates may take years to redeem.
  Tax liens offer interest income, while investing in tax deeds provides both income potential and ownership opportunities.
  
  

2. Real Estate Investment Trusts (REITs)

• Returns: Typically 6-10% annually, depending on market cycles.
  
• Risk Profile: Correlated with broader real estate markets.
  
• Liquidity: Public REITs trade like stocks; private REITs are less liquid.
  Compared to REITs, tax deeds are less correlated with market swings but require more specialized expertise.
  
  

3. Private Equity Real Estate

• Returns: Target IRRs often range from 12–20%.
  
• Risk Profile: High, with long holding periods and large capital requirements.
  
• Accessibility: Typically limited to accredited investors.
  Tax deed investing, by contrast, has lower minimums through tax deed crowdfunding and is accessible under Reg CF real estate rules.
  
  

4. Precious Metals and Other Hard Assets

• Returns: Driven by market demand; highly volatile.
  
• Risk Profile: Hedge against inflation but no income component.
  
• Liquidity: Readily tradable but speculative.
  Tax deeds differ by providing cash flow or redemption penalties rather than relying solely on appreciation.
  
  

Strengths of Tax Deed Returns

For investors comparing alternatives, tax deeds offer:

• Structured Penalty Returns: Fixed by law, not market trends.
  
• Real Estate Backing: Tangible asset support for each investment.
  
• Diversification Potential: Returns are not directly tied to stock or bond markets.
  
• Accessibility: Available to both accredited and non-accredited investors through crowdfunding.
  
  

Risks to Keep in Mind

Like other alternatives, tax deed sales come with risks:

• Property condition may be unknown.
  
• Redemption rules vary and tie up capital.
  
• Title issues may complicate resale.
  
• Liquidity is limited compared to REITs or public equities.
  

These factors mean tax deeds should be part of a diversified portfolio, not the sole focus of an investment strategy.

CORE Tax Deeds’ Approach

At CORE Tax Deeds, we make tax deed investing accessible through a crowdfunding model. By pooling resources across counties and property types, we diversify risk and create structured access for more investors.

Our model blends the benefits of tax deed returns with the oversight and transparency of a regulated structure.
For more insights, see our blog on How Tax Deed Investing Fits into a Diversified Portfolio.

Conclusion

When compared to other alternative investments, tax deed returns offer a distinct balance of structure and opportunity. They are backed by real estate, governed by clear state laws, and accessible through crowdfunding making them a unique complement to portfolios that already include REITs, private equity, or tax liens.

For investors looking to broaden their exposure to alternatives, tax deeds provide an option worth exploring. Learn more at our investment portal.

 

Disclaimer

This article is provided for informational purposes only and does not constitute investment advice. All investments carry risk, including the potential loss of capital. Please review offering disclosures at invest.coretaxdeeds.com before making any investment decision.