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Tax Lien vs. Tax Deed Investing: What's the Difference?

Learn the difference between investing in tax liens and tax deeds.

[Updated: Jun 30, 2021 ] Jan 08, 2020 by Liz Brumer

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Amount invested (winning bid amount) $2,000.00
11 months of interest at 8% per annum $146.67
Penalty income $75.00
Total Amount at Redemption $2,221.67
Total Profit $221.67
ROI 11%
Annualized Yield 10.56%
Delinquent taxes owed with interest $4,900.00
Current property value $50,000.00
Winning bid amount $38,500.00
Total collected by jurisdiction after sale $4,900
Total collected by lender/mortgagee after sale $33,600
Title certification $2,000
Total invested $40,500
Total profit $8,000
Cash-on-cash ROI 20%
tax liens and deeds state map

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Tax Lien Investing Tax Deed Investing
• Does not transfer ownership at public auction; the lien acts as a loan accruing interest and penalties until redeemed.
• Inexpensive, with tax lien certificates costing as little as a few hundred dollars to a few thousand.
• Passive investment requiring very little work after initial due diligence and auction participation.
• Redemption period or expiration date of the lien varies by jurisdiction.
• Transfer of ownership at public auction, where the property is deeded to the winning bidder.
• More expensive investment than a tax lien, costing anywhere from a few thousand to tens of thousands of dollars.
• Active investment requiring investor participation after the property is sold at auction.
• Sales can be redeemable or not depending on the state.

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