The drawbacks of tax deed investing can be summarized as follows:
Liquidity. If tax liens certificates are not liquid investments, then tax deeds are even worse. In some cases you will have your money tied up for several years before you can sell the property, because title companies may not issue title insurance on the property until all liens are cleared and it obvious that clear title can be granted. This process can take more than a year.
Complexity. Tax deed laws vary from state to state.
Time. Tax deeds sales require a time commitment to learn the rules of a state and its counties, research properties and attend auctions.
Risk. Purchasing foreclosed property at a tax deed sale definitely has some risk. You must do your homework. Remember, once you buy a tax deed, you will own the property including all of its potential problems. In addition, title companies sometimes will not
issue title insurance for at least the first year on any property bought at a tax deed sale. This means it could be hard to get a loan until it is clear that everything is fine with the property.
Capital. You definitely will need more capital to buy properties at tax deed sales. Although it varies from property to property and from state to state, you will likely need a minimum of $5,000 to $10,000 to get started in tax deed investing. Check local rules and regulations.
Michael Williams is co-author of the book and online course, Rogue Real Estate Investor Collection . a book that profiles the wide range of investing options available to real estate investors in one comprehensive 500-page manual that covers all 50 states and Canada. For two years, Rogue Real Estate Investor Collection has been one of the top real estate books on the Internet, selling over 5,000 copies.