How Does Buying Tax Liens Work: A Beginner’s Guide

Whether you are new to investing or looking to diversify your portfolio, understanding “how buying tax liens work” can open a new world of profitable opportunities. This comprehensive guide will explain the process, benefits, and considerations of investing in tax lien certificates.

Understanding Tax Liens

When homeowners fail to pay their property taxes, local government authorities have the right to place a tax lien on the property. To recover the owed amount, they sell these tax liens to investors in the form of certificates.

This process allows the government to collect the tax revenue necessary to fund public services. On the other side, investors purchasing these tax lien certificates stand to earn high returns on their investments.

How to Make Money Buying Tax Liens

Making money by buying tax liens is quite straightforward. When you buy a tax lien certificate, you effectively pay the owed property tax on behalf of the homeowner. In return, you get a lien on the property and the right to collect the owed amount plus interest from the homeowner.

If the homeowner pays their tax debt, you receive your investment back along with the interest, which can be quite high. However, if the homeowner defaults, you may get the opportunity to apply for a tax deed application, potentially acquiring the property at a significantly reduced price.

Steps to Buy Tax Lien Certificates


This is where your journey begins. Look into the rules and regulations of tax lien sales in your target location, which in this case is Overland Park, KS. Not all states sell tax lien certificates, and the rules can vary greatly.

Auction Participation: 

Once you’ve researched, it’s time to participate in an auction. These could be in-person or online auctions. Attending a few auctions is recommended to get the hang of the process before you make your first bid.


During the auction, you’ll bid on tax lien certificates. The bidding process can vary, but generally, the certificate goes to the highest bidder.

Winning and Payment: 

If you win a bid, you’re expected to pay promptly. Once paid, you’ll receive the tax lien certificate.

Repayment or Property Acquisition: 

If the homeowner repays their tax debt within the redemption period, you receive your invested money back plus interest. If not, you can start the tax deed application process.

Investing in Tax Lien Certificates: The Pros and Cons

Investing in tax lien certificates is like buying a special kind of ticket. You pay the government the money someone owes in property taxes. Later, you get your money back with extra money (interest) added. This might also give you a chance to own the property, like a house or a piece of land, at a very low price. But remember, there are good things (pros) and not-so-good things (cons) about this.

The Good Things (Pros)

You Get Extra Money: When the owner pays back the tax money, they also pay you extra money for your help. This extra money is called interest. It can be a lot!

You Could Own Property: If the owner can’t pay back the tax money, you might get to own their property. You could get a house or land for less money than it’s worth.

Steady Income: If you invest in many tax liens, you can have a steady stream of money coming in as the owners pay you back, plus the interest.

Diversification: Tax lien certificates can be a good way to make your money work differently. This is like not putting all your eggs in one basket.

Learning Opportunity: Investing in tax liens teaches you about real estate and taxes. These are important things to know!

The Not-So-Good Things (Cons)

Other Money Could Be Owed: Sometimes, the property might have other unpaid money called liens. If you get the property, you might have to pay these too.

Other Money Could Be Owed: Sometimes, the property might have other unpaid money called liens. If you get the property, you might have to pay these too.

The Owner Might Go Bankrupt: If the owner can’t pay their debts and goes bankrupt, it could become harder for you to get your money back or own the property.

Extra Costs for You: If you get to own the property, you will have to pay for things like fixing it up or paying future taxes.

Time-Consuming: Learning about tax lien investing can take time, choosing the right certificates, and waiting for your investment to pay off.

The Property Might Not Be Great: Sometimes, the property tied to the tax lien might not be in good condition or in a desirable location.

Even though some are not-so-good things, many people still invest in tax lien certificates. They learn how to handle the risks. A good way to learn is by reading books about tax lien investing. These books can teach you smart ways to make this kind of investment work for you.


At Tax Lien Code, we believe that understanding “how buying tax liens work” can empower you to make informed investment decisions. Knowledge is key, whether it’s learning about Texas tax lien certificates or researching the implications of a tax certificate in real estate.

Remember, while investing in tax liens can be profitable, it’s essential to understand the process, assess the risks, and take an informed approach. Hopefully, this guide has given you a good starting point on your journey toward tax lien investing.