If you're already buying or selling homes—or thinking about it—you may be surprised to learn there's another way to profit from real estate without buying a home at all. It’s called tax lien investing, and while it may not be flashy, it can offer serious returns if you know what you’re doing.

What Is a Tax Lien?

When property owners fall behind on their taxes, local governments place a lien on the property and often auction it off to recover unpaid taxes. As an investor, you’re not buying the property itself—you’re buying the right to collect that debt, often with interest.

Tax Liens by the Numbers

Tax lien certificates can be purchased for just a few hundred dollars and may offer returns ranging from 5% to 36%, depending on the state. Some states hold public auctions once a year, while others offer online sales. It’s one of the few ways you can invest in real estate without needing tens of thousands of dollars upfront.

How Can I Invest in Tax Liens?

Start by researching your county’s tax lien auction process. Many areas post available liens online, and you can often bid virtually. If you win, you’ll pay the outstanding tax amount and, in return, receive a certificate that entitles you to collect interest when the property owner pays the debt—or in some cases, foreclose on the property if they don’t.

Tips for Tax Lien Buyers

• Know the property: Always research the condition and location of the property before bidding.

• Understand state laws: Each state has its own rules around redemption periods and interest rates.

• Start small: Begin with a few lower-cost liens to learn the process.

• Avoid improved properties with major red flags: Don’t assume every lien is a hidden gem.

How to Profit From a Lien

Your two paths to profit are:

1. Interest payments from the property owner who eventually pays their taxes.

2. Property ownership if the lien goes unpaid long enough and foreclosure becomes an option.

Either way, the goal is to earn more than you invested.

Investing Passively Through an Institutional Investor

If all this sounds complex, there’s another option: invest through a fund or institutional investor that specializes in tax liens. It’s hands-off, but returns may be lower and fees higher. Still, it can be a smart way to get exposure without managing individual certificates.

Disadvantages of Investing in Property Tax Liens

• High research demand: Success depends on due diligence and understanding local laws.

• Uncertain timelines: It could take months—or years—to get paid back.

• No guarantee of return: Some liens never pay out or lead to properties with little value.

The Bottom Line

Tax lien investing isn’t for everyone—but if you’re a home buyer or seller already tuned into the real estate market, this strategy could be a powerful way to diversify. With minimal capital, plenty of patience, and a little research, you could turn unpaid taxes into a new source of income.