The Benefits of Tax Liens Investments

Portfolio diversity is essential to maintain a healthy balance, even when the stock market is performing well. Investing in tax liens can diversify and protect your retirement savings when the stock market isn’t booming.

It’s not a complex process. With a bit of knowledge and research, you can start investing with limited funds and earn tax-sheltered returns. With the capital you are building in your retirement plan, later on, you will be able to acquire more lucrative real estate assets.


Every year, property owners are required to pay their property taxes. Unpaid property tax bills are auctioned by the governing municipality when not paid. 

A property tax lien auction is a transaction in which liens are sold to investors (or, for this article, to your IRA).

  • Make the most cash offer: The investor takes ownership of the lien and arranges repayment with the homeowner, setting a new interest rate and repayment terms.
  • The lowest interest rate: The interest rate is attached to the tax bill and accumulates during the lien period (generally 24 months). On behalf of the investor, the municipality continues the billing and collection process.

 Both scenarios result in your IRA holding the lien.

 Your IRA can generate income in two ways. One is on the interest accrued until the liens are paid in full, while the other is in case of default when the IRA owns the property and can sell it to recoup its investment on the lien.


Investing in retirement accounts can build tax-free income and grow your capital for reinvestment. A more extended grace period is given to the homeowner to pay the bill. City/state operations can continue without interruption.


Investors consider tax lien assets relatively low risk, but you should still conduct due diligence before investing.

Before the auction, you should research potential properties.

In the event the homeowner defaults, you/your IRA can take possession of the property. To make an attractive and profitable sale, you may have to invest more funds into the property, depending on its condition. Since the investment belongs to your IRA, you must pay all expenses with IRA funds. Therefore, you need to make sure you have enough money to cover these expenses in your account.

Visit properties up for auction in the counties and neighborhoods where you’re interested in owning property. The inside won’t be accessible or an appraisal available, but driving by shouldn’t be a problem. Doing so can mitigate a certain amount of risk if you end up owning the property, thereby removing undesirable properties from your list.

Investing in tax liens differs from state to state and county to county.

Understanding and following the rules and guidelines of municipalities that govern tax lien properties is fundamental. Bidding on properties requires understanding the auction process to ensure compliance with regulations.