What are the 3 most profitable states to invest in fiscal bonds?
None of the 3 most profitable states to invest in tax bonds have online tax sales. You have to appear in person at the tax sale or have an agent do it for you. Two of the top three aren’t even tax lien states, they’re redeemable deed states.
What is a Redeemable Deed?
A redeemable tax deed is just like a regular tax deed, except that the original owner of the property can return and redeem the property from the tax deed purchaser. To redeem the property, the original owner must pay the offer price plus a hefty fine, which varies by state.
There are 7 states with redeemable deeds, but two of them have high rates of return with short redemption periods (one year or less). Those states are Texas and Georgia. In addition to being the most profitable states to invest in, they also have sales tax more frequently than the other states with redeemable deeds. The larger counties in Texas and Georgia have tax sales once a month. The rights and responsibilities in these 2 states differ, although both are redeemable deed states, deeds are treated differently in each state.
The third most profitable state to invest in with a tax lien is a tax lien state, but in this state the investor receives a penalty, not an interest rate, as stated in the redeemable deed. A penalty is more profitable for the investor because it is not annualized, so if the bond redeems a few days after the tax sale, you get the full amount of the penalty, not an annualized rate.
To illustrate this, let’s say you buy a lien in one of the lien states that has a fairly high interest rate, and get it at the default rate. We will use a rate of 18% per year. But if the bond redeems just one month after the tax sale, you don’t get back 18% of your investment; you received an annualized rate of 18%, which is effectively 1.5% of your investment one month after the tax sale. But if you bought that lien in a state that pays a penalty and not an interest rate, and you offer 18% on the lien, you would receive 18% on your money, even if it is redeemed a few days after the tax sale.
So which state is the most profitable tax lien state? It’s Illinois, but if you purchase a tax lien certificate in this state, you have certain responsibilities that must be met to protect your investment. Investing in tax liens or redeemable deeds in any of these states is not for the faint of heart. If you don’t know what you’re doing, you could lose your investment.
If you plan to invest in any of these states, you need to know what you are doing before you bid on the tax sale. Another alternative is to let an expert do everything for you; from due diligence before bidding on the tax sale, to taking care of foreclosure proceedings and maintaining the property after the redemption period ends.