Tax lien certificate and tax deed investing are two of the best ways to make money in real estate.

Make 12% to 18% on your money in tax lien states or buy property for a fraction (as little as 10%) of it's market value in tax deed states.

What are the advantages to investing in tax liens and tax deeds?

• You can make double-digit returns on your money with low risk and low maintenance
• Enjoy safe and passive cash flow
• Not subject to government interest rate changes
• Property tax lien is secured to real property as a first priority lien at a fraction of its market value
• Low investment needed. Tax liens can be purchased for as little as a couple hundred dollars - if that much.

Background: What are tax liens and tax deeds?

When property owners don't pay their property taxes, they become delinquent. There are over 3,000 counties in the United States and the tax collector for each county is primarily responsible to collect the unpaid taxes through a process by selling, at public auction, either a Tax Lien Certificate or a Tax Deed, depending on the state the property resides in.

Tax Liens vs. Tax Deeds: What's the difference?

The difference between these two types of processes is the "bundle of rights" sold to the purchaser.

Tax Deed States: If the taxes are not paid, the county will sell full ownership and possession rights to the investor at a public foreclosure auction or later assignment process. The property is sold for the unpaid taxes plus any fees, interest charges, and court costs. Since the unpaid property taxes are usually a small percentage of property's market value, perhaps less than 10%, you, as a tax deed investor, can buy full property rights at a fraction of the market value. You need to be aware of any redemption periods some states give the delinquent property tax owner.

Tax Lien States: The county auctions off just the right to the tax lien or tax claim on the property, not the property itself. This lien is an encumbrance or enforcement right held by the county.

As an investor, the tax lien certificate you buy gives you two important rights:

[1] The right to receive interest penalty charges if the lien is paid off by the property owner and

[2] The right to foreclose the tax lien and take title to the property if the lien is not paid by the redemption period.

A nice feature of the tax lien is that it is a "high priority lien," i.e., this lien comes before judgment liens, mortgage liens, trust deeds and other private liens.

The interest penalty income can be substantial, depending on the state.

Here's a few examples of the interest income you can earn:
Arizona: 16%
Florida: 18%
Illinois: 18%
Iowa: 24% Kentucky: 12%
Mississippi: 18%
Nebraska: 14%
New Jersey: 18%
Ohio: 18%
Wyoming: 15%

Not too shabby!

How to get started in this lucrative investment niche

You'll need to find out the following items:

• The date and location of the next tax sale.
• A list of tax liens or properties to be auctioned -- Call the tax collection agency in the county you are interested in and ask them to mail you a list or if they have a website with the list. The county will also publish the list in the local newspaper.
• Do further research on the properties you are interested in buying. This involves driving by the property, determining fair market value, etc. Your goal is to find properties that are worth far more than the unpaid taxes owed to ensure you've made a good investment.
• Know the terms and conditions of the sale, i.e. how the bidding process works as well as how to pre-register and how payment is accepted.
• Find out what happens with unsold liens and deeds to purchase them.

Which investment is best for you - liens or deeds?

Here are some factors to consider to help you decide which investment is best for you:

Strategies to own the property or just earn the interest income

Investing in tax lien certificates, allows you to make money no matter the outcome. If your goal is to obtain the property in addition to the guaranteed interest income, try targeting out-of-town property owners, homes and lots in subdivisions that are free and clear and vacant land.

If you want to focus on the passive, guaranteed interest income only, try targeting owner occupied property that have mortgages. These types of property owners are more likely to redeem their property by paying the back taxes and penalties.

How to control your risk and maximize your profits

When you're starting to learn a new skill, especially one that involves money, it's a great asset to have someone with experience to coach you so you avoid costly mistakes and shorten the learning curve. I would highly advise you to find someone with experience in tax lien or tax deed investing. If you don't know anybody in your area, then get a "virtual mentor" to help you.

The experts I've discovered to help you in this investment niche will teach you more than just the basics. You'll learn insider secrets from years of experience including:

• How to do due diligence on tax sale properties before you bid on them
• How to develop a bidding strategy before you go to the tax sales for greater success
• How to make sure you don't pay too much money for a tax lien or deed
• What to do once you buy a tax lien certificate or tax deed to increase your profits and protect your investment with simple, yet important procedures
• How to register for the tax sale
• What forms you need and where to get them
• How to buy tax liens or deeds online or through the mail
• How to clear title to a property that you purchased from a tax sale
• Which is better - to buy tax liens and deeds in your own name or a business name

So I encourage you to review the recommended experts on this site and choose an experienced "virtual mentor" to help you be a success in the very lucrative niche of tax lien and tax deed investing.