Most investors know the difference between a tax lien and a tax deed. They understand that when they buy a lien they are not buying the property, but paying the taxes on a delinquent property and putting a lien on the property so that if the property owner does not pay the amount of the lien plus interest and penalties, in a specified period of time (the redemption period) can foreclose on the property. And they understand that when they go to a tax deed sale and buy a tax deed, they are actually buying the property. But many would be tax investors who don’t understand what a redeemable deed is and how it differs from a bond.

What is a redeemable tax deed?

A redeemable tax deed is somewhere between a bond and a deed. When you go to a tax redeemable deed sale, you are actually buying the deed to the property. If you are the successful bidder, you will receive a deed for the property. That deed, however, is encumbered for a period of time known as the redemption period (not to be confused with the lien redemption period). The owner can redeem the property by paying the amount offered for the deed at the tax sale plus a hefty penalty. If the deed is not redeemed during the redemption period, the previous owner cannot redeem the property and the tax deed holder is the registered owner and legal owner of the property.

Which is better, redeemable deeds or tax liens?

A redeemable tax deed is very similar to tax liens, but there are some important differences that I believe make redeemable deeds a better deal for the investor. I will point out that each redeemable estate treats these facts differently. In some states, like Texas for example, when you buy a redeemable deed, you are considered the legal owner of the property and can evict anyone who may be on the property once you record the deed. The previous owner has redemption rights, but is no longer considered the rightful owner of the property. But in Georgia, which is another popular redeemable deed state, when you buy a deed you are not the legal owner of the property until the redemption period is over and you foreclose on the property. In Georgia, you must execute the redeemable deed as you would a lien to take possession of the property.

But in both states and most other states with a redeemable deed, to redeem the deed, the owner must pay the investor what he offered at the tax sale plus a hefty penalty, not interest. What this means is that if he buys a redeemable tax deed and redeems it a few days after recording the deed, he still receives the full amount of the penalty. You earn the same interest on your money whether it is redeemed in 2 weeks or 2 years. A penalty is not annualized like an interest payment would be.

What are the drawbacks of investing in exchangeable deeds compared to tax liens?

The problem with investing in callable deeds is that there are only 5 states that sell them and none of these states have online tax sales, so you have to show up at the auction to be eligible for the sale. The 5 states that sell redeemable tax deeds are Connecticut, Georgia, Hawaii, Tennessee, and Texas. To learn more about Tax Lien Investing and Tax Deed, visit http://www.TaxLienInvestingBasics.com and get your free special report on the 7 Steps to Building Your Profitable Tax Lien Portfolio.