I am frequently asked which state is the best state to begin with as a new tax lien or deed investor. The answer to that question really depends on a number of variables. The correct answer is likely to be different for every investor depending on those variables. Some of the variables to be considered when choosing a state include accessibility, information available online, economic conditions, affordability, terms and conditions, how familiar you are with the state and many more. My point is there is no single correct answer to which state is the best to begin investing in.
Before you choose a state to begin your tax lien or tax deed business in, you must determine the type of investing that you want to pursue. In the simplest terms you need to choose between deed investing and lien investing. Choosing one or the other will eliminate almost half of the states for you. If you choose to invest in deeds then you need only focus on the deed states, there are only a few states (Indiana, Pennsylvania, and Florida) that offer both liens and deeds to non-institutional investors. Of course the opposite is true if you choose to invest in tax liens.
The variables to consider in choosing a deed state are little different than those for choosing a lien state. Since purchasing terms are quite similar from state to state in the deed states the terms aren’t as big of a factor in choosing a deed state. The major considerations in choosing a deed state should be economic conditions and accessibility. Economic conditions are a critical consideration in tax deed investing because they dictate the potential return on investment. The more vibrant the economy is, the easier it is to sell properties at top dollar. Accessibility is an important consideration because very few deed sales are held online compared to the number of live sales that are held. Purchasing a property that will likely require some rehab or repair in an area that is a long distance from your current location can provide a challenge as well which is another reason why accessibility is an important consideration when choosing a deed market.
The most important variables to consider when choosing a lien state are the terms of the tax lien certificate and the auction method used. The terms of the tax lien certificate are important because they determine the rate of return on your investment as well as the length of time the property owner has to redeem the investment. Many people tend to gravitate towards the states that offer the highest interest rate or penalty, however if they fail to consider the auction method used they may end up disappointed at the end of the sale. If the state uses the bid down the interest rate auction method, in most cases the investor will not be able to obtain the advertised interest rate on their investment. If the state uses the premium bid method the investor needs to determine whether or not the premium is returned and whether or not interest is paid on the premium.
The U.S. Tax Lien Association teaches their clients how to use assignment purchasing to get the full statutory interest rates and penalties even in states that use the bid down on the interest auction method. The good news is that it doesn’t matter which state you choose investing in tax lien certificates or tax deeds using the proper evaluation methods taught by the U.S. Tax Lien Association will always outperform the market.