What Are the 3 most profitable states for tax lien investing?
None of the 3 most profitable states for tax lien investing have online tax sales. You have to show up in person at the tax sale, or have an agent do it for you. Two of the top three are not even tax lien states, they’re redeemable deed states.
What’s a Redeemable Deed?
A redeemable tax deed is like a regular tax deed, except that the original property owner can come back and redeem the property from the tax deed purchaser. In order to redeem the property the original owner must pay the bid price plus a hefty penalty, which varies according to the state.
There are 7 redeemable deed states but two of them have high rates of return with short (one year or less) redemption periods. Those states are Texas and Georgia. Besides being the most profitable states to invest in, they also have tax sales more often than the other redeemable deed states. The larger counties in Texas and in Georgia have tax sales once a month. The rights and responsibilities in these 2 states differ, even though they are both redeemable deed states the deeds are treated differently in each state.
The third most profitable state for tax lien investing is a tax lien state, but in this state the investor receives a penalty, not an interest rate – like the redeemable deed states. A penalty is more profitable to the investor because it is not annualized, so if the lien redeems a few days after the tax sale, you get the full penalty amount, not some annualized rate.
To illustrate this, let’s say you purchase a lien in one of the lien states that has a fairly high interest rate and you get it at the default rate. We’ll use a rate of 18% per annum. But if the lien redeems just one month after the tax sale, you receive don’t receive 18% on your investment; you received an annualized rate of 18%, which is effectively 1.5% on your investment one month after the tax sale. But if you purchased that lien in a state that pays a penalty and not an interest rate, and you bid 18% on the lien, you would receive 18% on your money, even if it redeems a few days after the tax sale.
So which state is it that it the most profitable tax lien state? It’s Illinois, but if you purchase a tax lien certificate in this state you have certain responsibilities that need to be carried out in order to protect your investment. Investing in tax liens or redeemable deeds in any of these states is not for the faint of heart. If you don’t know what you’re doing, you could lose your investment.
If you plan on investing in any of these states, you need to know what you’re doing before bidding at the tax sale. Another alternative is to let an expert do everything for you; from the due diligence before bidding at the tax sale, to taking care of foreclosure procedures and maintaining the property after the redemption period is over.