Want to know which are the top 5 states for tax lien investing?
One question that I get frequently from subscribers to my TaxLienLady.com website is “Where is the best place to invest in tax liens?” So here are what I consider to be the top 5 states for tax lien investing.
Texas
Texas is actually not tax lien state, but a redeemable deed state. The nice thing about purchasing a redeemable deed though, is that you get a penalty when the deed redeems, not an annualized interest rate as you do with liens. This means that it doesn’t matter when the deed redeems, you get the full penalty, not a fraction thereof. And in Texas the penalty is 25% in the first 6 months, 50% in the first year. So if the deed redeems in the first 6 months you get 25 percent on your money and if it redeems in the first year you get 50 percent on your money.
The redemption period in Texas is only 6 months for non-homesteaded and non-agricultural properties. So if the deed redeems, you only get the 25 percent on those type of properties and if the deed doesn’t redeem in 6 months, you receive ownership of the property. That is another nice thing about redeemable deeds in this state; you are considered the owner of the property as soon as the redemption period is over and you do not have to go through foreclosure procedures. You will have to clear the title, but that is something that you would have to do with any tax foreclosed property anyway.
Unlike some of the other redeemable deed states, in Texas you actually receive the deed at the sale and must record it with the county clerk. Once the deed is recorded the redemption period starts. You are considered the owner of the property and can take possession of the property, but you won’t be able to get clear title until the redemption period is over. Also you’ll want to be careful about renting or renovating the property since the previous owner still has redemption rights until the end of the redemption period.
Illinois
In Illinois the interest rate is 18% but unlike other states that have an annual maximum interest rate of 18 percent, in Illinois the rate is not per annum, It’s more like a 6 month penalty rate, so your annualized interest rate in Illinois is 36 percent. The redemption period is 3 years.
Counties in Illinois may have 2 types of tax sales. At the annual tax sale the interest rate is bid down and the tax lien is awarded to the investor with the lowest bid. Some counties will also have a “scavenger” sale of items that did not sell in previous tax sales. The bidding for this sale is different than in the first tax sale. Instead of the interest rate being bid down the certificate is sold to the highest bidder for cash, and it may be sold for less than the original delinquent tax amount.
Iowa
In Iowa the interest rate 24% per annum. This rate is not bid down at the tax sale. But the down side to that is that the percentage ownership in the property should the lien not be redeemed is bid down at the tax sale. It is the investor willing to take the smallest percentage in the property that wins the tax lien. So though the annual rate is high in Iowa, there may not be as much incentive for the owner to redeem the lien, since he doesn’t lose the property entirely if he or she doesn’t redeem the lien. What’s good about Iowa is that the percent ownership is not always bid down. This depends on the procedure followed in each county. Some counties will award bids based on a lottery system rather than a bid down the ownership interest system of bidding.
Georgia
Georgia, like Texas, is another redeemable deed state. But even though it is a redeemable deed state, the redeemable deeds in Georgia are more like liens than deeds. Unlike Texas, you are not considered the owner of the property, and have no right to the property, until the redemption period is over and you foreclose the right of redemption. This is actually more like a lien than a redeemable deed, with the exception that you do get a penalty of 20%, not an annualized interest rate, if the deed does redeem. The 20% penalty is paid on the full amount that is bid at the tax sale. Since the price of the deed is bid up at the tax sale, this can make redemption difficult for the property owner and the possibility of actually foreclosing on the deed more likely for the investor.
Nassau County, NY
Most of New York State sells deeds, not liens. The 5 boroughs of New York City do sell liens but not to individual investors. They bundle their liens into large packages and auction them for millions of dollars to big fund companies. There is one NY county that has a very well attended tax lien sale each year, and that’s Nassau County. The interest rate is 10%, but like Illinois, it’s 10% per 6 months, not per annum. So if you are lucky enough to get the default rate on a Nassau County tax lien, you actually get 20% per annum on your lien. The villages of Nassau County hold their own tax lien sales once a year, adding to the opportunity of the investor to accumulate liens.
These five states have the highest returns for tax liens, or redeemable deeds, but, none of these states have online tax sales. So if you don’t live in or near these states, they may not be the best place for you to invest. If that is the case, you’ll want to be on the lookout for my next article “The Top 5 States For Investing In Tax Liens Online.”
By Troy Laugen April 15, 2012 - 12:00 am
Hi Joanne
I have been to a number of classes regarding (deeds and liens) my interest is in Texas however with that said. Where does one go to find a list of counties that have a list of deeds that are in inventory and available for purchase? Thanks Troy L.
By Joanne April 15, 2012 - 10:30 pm
Hi Troy,
Not all counties in Texas have over the counter deeds. In order to find out if they do you would have to call the county treasurer or tax collector. Some counties that do have OTC deeds will list them on their web site.
By Tanya September 5, 2011 - 6:21 pm
Hi Joanne,
I bought a tax lien on June this year and paid for Sub-tax. I believed that once the tax lien record, it attached to the property, right? And they cannot sell the property until they pay off the lien? Is it possible that the owner can still sell the property? The property record under previous owner who pass away and had someone as executor of the property. He sold the property on Aug 18. I got a phone called from the county last month said that they wanted to redeem the lien, but when I called the town two weeks ago, they said that no one redeem it yet. Now I see that the deed record to the new owner. Do I need to do anything? Thanks for your help.
By Brian Templeton September 2, 2011 - 11:27 pm
Hi Joanne,
Thank you for straightening me out about Texas and Illinois tax note
practices. I much appreciate your advice.
Brian.
By Brian Templeton September 2, 2011 - 3:12 am
Hi Joanne!
I read your comments on Texas Tax Deed interest at 50%/year, I hope
you do not mind me saying that I think you are in error. Surely,
after receiving 25% on your money after six months, that if you
re-invested it all, you would receive interest on the interest, i.e.
compounding:- giving you 56.25% for the year instead of 50%. Of course
if there is a redemption,(or two!), your interest rate could be much
higher! I know that of all the texts that I have read from various
authors have said 50%/year, but I believe them to be in error also. Your comments on Illinois could mean that compounding could apply
there as well at 39.24%/year on your money. If what I said is fact,
I am sure that your other students as well as I, would be happy to
know there is even more money to be had by investing in these two
states.
By Joanne September 2, 2011 - 10:11 pm
Hi Brian,
What you need to understand about Texas and the other redeemable deed states is that you get a penalty, not an interest rate. So you don’t receive any interest on the interest. In Texas you only get 50% if you invest in a homesteaded property and it redeems in the first year, but not in the first 6 months. If you invest in a non-homesteaded property, then you are automatically the owner after 6 months.
I know that you are considering that you would reinvest that money right away and put it all to work for you again, and yes if you are able to do that then you would make a higher percentage, but I wouldn’t count on that because you don’t when you are going to be able to reinvest that money.
Illinois, even though it is a lien state and not a redeemable deed state, also gives a penalty and not an interest rate, it is the only lien state that I know of that does that. You get 18% in the first 6 months. So if the lien redeems any time in the first 6 months you get 18% on your lien. You get 36% if it redeems after 6 months but before 1 year. Each 6 months – until the redemption period is up, another 18% penalty is added. But the most you get per year is 36%. It’s even more difficult to turn around and invest that money again because tax sales in Illinois counties only happen once a year, unlike Texas where some counties have a tax sale each month.
By Lilya August 31, 2011 - 2:21 pm
Thank you Joan! As always, your information is easy to understand & follow. Thank you.
By william carter August 31, 2011 - 1:13 pm
I want to know more information about Texas redeemable deeds, and the 6 month rule..
By Joanne September 1, 2011 - 9:59 pm
Hi William,
The 6 months redemption period in Texas is only for non-homesteaded, non-agricultural properties. Homesteaded properties have a redemption period of 1 year and it could go longer. If you are really interested in investing in Texas, I recommend that you get the program Texas Houses For Pennies from Darius Barazandeh. Darius is a Texas attorney and tax deed investor. You can find more information on his program at http://www.taxlienlady.com/texastaxdeed.htm.