So many new tax lien investors don't know the difference between a tax lien and tax deed. They've heard that tax liens are a great investment and that you can get the property with a tax lien. So they confuse tax liens and tax deeds. For those of you who think that buying a tax lien is a good way to get property, you're wrong.

Tax lien investing is not a good way to get property for back taxes. When you purchase a tax lien, you are not purchasing the property. You are simply paying the property owner's taxes and getting the interest and the penalties that the government would normally collect. One of the reasons that tax liens are such a good investment is that if the lien is not redeemed within a given amount of time (this is the redemption period and varies with the county and state that the lien is purchased in), then the lien holder can foreclose on the property.

It is very seldom that a tax lien on a good property will not redeem. So the lien buyer almost never gets the property, unless the lien buyer specializes in buying liens on vacant land, or properties that have problems, or unless the lien buyer doesn't do his or her homework and buys liens on junk properties. Tax lien investing, while it's a great way to invest your money at a high return, is not a way to buy properties for a fraction of their value.

What's different about a tax deed is that when you purchase a tax deed you are actually purchasing the deed to the property, not just a lien. When you are the successful bidder at a tax deed sale, or if you purchase a tax deed directly from the county, you are actually purchasing the property and will receive some sort of deed to that effect. Usually it is a non-warrantee deed. In most deed states (but not all of them, there are a couple of exceptions), the property is conveyed free of any liens, but there is no warrantee on the title. The title may have to be cleared before title insurance can be issued on the property, and the tax deed buyer may have to evict any inhabitants, but the property reverts to the deed buyer once the deed is recorded.

Now I don't want to confuse you, but there are a few states that sell redeemable deeds, and in these states the deed does not actually revert to the tax deed purchaser until the redemption period is over and the deed is not redeemed. It's somewhat in-between a tax lien and tax deed, in that you're actually purchasing the deed at the tax sale, but the previous owner has a period of time to redeem the property. There are usually steep penalties when redeeming these deeds that go to the investor, so redeemable deeds are a good investment for the purchaser either way. Either they come away with the property or get a great return on their money.

For more information about which states sell liens, which states sell deeds and which states sell redeemable deeds see the online home study course Tax Lien Investing Basics.

Author's Bio: 

Joanne Musa, the "Tax Lien Lady," has helped new investors all over the world explode their profits using safe, high yielding, real estate secured tax lien certificates. To receive your FREE Tax Lien Investing Kit, that has helped thousands of investors, just like you learn how to build their own profitable portfolio of tax lien certificates or tax deeds go to www.TaxLienInvesting