When it comes to alternative real estate strategies, few areas generate as much curiosity as tax lien investing. For new investors, the concept often sounds complicated — after all, you’re not buying a home or even a deed outright, but instead stepping into the shoes of a county or municipality that’s owed back taxes.

In this guide, we’ll walk through the fundamentals of tax lien investing, how it differs from tax deed investing, and the key considerations every beginner should keep in mind.

What Is Tax Lien Investing?

When property owners fall behind on their property taxes, local governments place a lien on the property to secure the unpaid debt. Instead of waiting months or years to recover that money, many counties sell these liens at public auctions.

Here’s what happens next:

• An investor buys the lien, paying off the delinquent taxes owed to the county.
• The property owner is required to repay the back taxes, plus interest or penalties, to clear the lien.
• When the owner pays, the investor earns the interest.

If the owner fails to pay, the lienholder may eventually have the right to foreclose and take ownership of the property. However, in most cases, the goal of tax lien investing is to earn interest income, not to acquire property.

Tax Lien Investing vs. Tax Deed Investing

Many beginners confuse tax liens with tax deeds, but the distinction is important.

• Tax Lien Investing – You’re purchasing the tax debt. The property owner still holds the deed, but must repay the lien with interest.
• Tax Deed Investing – You’re bidding on the property itself at a tax deed sale. Depending on state rules, you may gain full ownership once redemption rights expire.

Both strategies fall under the umbrella of distressed property investing, but they serve different purposes. For new investors, understanding this difference is the first step in deciding which approach better aligns with their goals.

How Tax Lien Investing Works in Practice

While each state has its own rules, the general process looks like this:

1. Auction Held – Counties hold tax lien certificate sales, either at the courthouse or online.
2. Investors Bid – Bidding may be based on interest rate, premium paid, or fixed price depending on the county.
3. Lien Assignment – The winning bidder pays the delinquent taxes and receives a tax lien certificate.
4. Redemption Period – The property owner has a set timeframe to repay the lien plus interest.
5. Return Earned – If the owner redeems, the investor earns interest; if not, foreclosure may become an option.

Why Some Investors Explore Tax Lien Investing

For new investors, the appeal of tax lien investing often includes:

• Predictable Interest Returns – Interest rates are established by law, not by market conditions.
• Secured by Real Estate – Liens are tied to physical property, which can provide an added layer of security.
• Diverse Opportunities – With thousands of liens auctioned each year, investors can choose based on geography, property type, or interest rate.

However, like all investments, risks are very real.

Risks Every New Investor Should Understand

Before diving into tax lien investing, it’s important to consider the challenges:

• Property Value Risks – If foreclosure becomes necessary, the property might not be worth the lien amount.
• Competing Liens – Mortgages, IRS liens, or other encumbrances may take priority.
• Redemption Uncertainty – Some liens redeem quickly, while others linger for years.
• Complex Local Rules – Every state has unique laws governing tax lien sales.

These risks highlight why due diligence is essential, and why some investors choose to participate through pooled structures rather than going it alone.

Where CORE Tax Deeds Fits In

At CORE Tax Deeds, our primary focus is on tax deed investing in Texas. Unlike liens, Texas tax deed properties are sold directly at auction, with redemption penalties clearly defined by state law.

Through our Regulation Crowdfunding real estate structure, we make it possible for investors to participate in these opportunities without needing to attend courthouse auctions themselves. This model differs from tax lien investing but offers a regulated, accessible pathway for those seeking alternatives to traditional real estate markets.

Tips for New Investors Considering Tax Lien Investing

If you’re thinking about exploring tax lien certificates, here are some steps to consider:

1. Research Your State’s Rules – Redemption periods and interest rates vary widely.
2. Start Small – Begin with smaller liens to learn the process before scaling up.
3. Perform Due Diligence – Even if you don’t intend to foreclose, know the property’s value and risks.
4. Stay Organized – Track redemption dates, payments, and interest carefully.
5. Consider Alternatives – If direct lien investing feels overwhelming, explore structured approaches like tax deed crowdfunding.
   

Final Thoughts

Tax lien investing offers a distinct way to participate in real estate-backed opportunities. For some, the attraction lies in interest income secured by property. For others, it’s a gateway to learning more about the broader world of distressed property investing.

For new investors, the most important takeaway is this: success depends on education, due diligence, and understanding local rules. Whether you pursue tax liens directly or prefer to invest in tax deeds through CORE Tax Deeds’ platform, the key is to align your strategy with your risk tolerance and long-term goals.

Disclaimer: This article is for educational purposes only and does not constitute investment advice. Tax lien investing carries risks, including possible loss of capital, and may not be suitable for all investors. Please review our official offering materials at invest.coretaxdeeds.com before making any investment decision.