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If you’re new to tax lien investing, one of the first things you’ll come across is how much you can earn from interest rates.
But before you get excited about sky-high returns, it’s important to know that different states offer different rates.
In some states, you’ll find lower rates, which might make you wonder: Is it worth it?
As a novice, lower interest rates might actually offer a safer entry point, especially if you want to avoid jumping into fierce competition.
Here’s a look at five states with the lowest tax lien interest rates, and why they might be good options for a beginner like you.
1. Alabama (12% Annual Interest Rate)
Source: https://en.m.wikipedia.org/wiki/Flag_of_Alabama
Alabama is a state that keeps things simple. The interest rate on tax liens here is 12%, which is lower than in some high-yield states but still decent enough to make it attractive.
If you’re just starting, Alabama might be a good option because the process is straightforward and manageable.
Pro Tip: In Alabama, tax lien auctions are held once a year, usually in May.
Make sure you check in advance for the auction dates in the county you’re interested in.
2. Arkansas (10% Annual Interest Rate)
Source: https://www.sos.arkansas.gov/education/arkansas-history/history-of-the-flag
With an interest rate of 10%, Arkansas offers a lower return but also less competition, which is ideal for new investors.
The state also has a well-organized process for buying tax liens, and auctions are held both live and online, making it easy to participate from anywhere.
Actionable Tip: Arkansas allows you to redeem properties by paying the taxes and fees owed, making it a good state for those looking to learn the ropes in a less cutthroat environment.
3. Kentucky (12% Annual Interest Rate)
Source: https://en.m.wikipedia.org/wiki/Flag_of_Kentucky
Kentucky offers a 12% interest rate on tax liens, which is relatively modest compared to some other states.
However, Kentucky is attractive because its auctions are competitive but not overwhelming.
You can find some excellent long-term opportunities here without feeling like you’re getting outbid left and right.
Next Step: Check out Kentucky’s Department of Revenue website for details on upcoming tax lien auctions and sign up for notifications so you don’t miss important dates.
4. North Carolina (8% Annual Interest Rate)
Source: https://en.m.wikipedia.org/wiki/Flag_of_North_Carolina
North Carolina has one of the lowest tax lien interest rates in the country at 8%.
While the return isn’t sky-high, this lower rate can work to your advantage if you’re looking for less risky investments.
It’s also great for investors who prefer playing the long game, as this state offers stability over quick returns.
Investor Tip: North Carolina’s tax lien auctions are county-based, so make sure to do your homework on specific counties, as they may have different auction rules and timelines.
5. Colorado (9% Annual Interest Rate)
Source:https://en.m.wikipedia.org/wiki/Flag_of_Colorado
At 9%, Colorado offers a steady interest rate. The state’s lien process is well-regulated, and counties handle their own auctions, which means you can find some variation depending on where you invest.
This flexibility can make Colorado a good place to start for beginners who want to explore different markets.
Pro Tip: Colorado’s progressive bidding system means the more you know about the rules in specific counties, the better your chances.
Spend some time researching county-specific guidelines before jumping in.
Should You Invest in States with Lower Interest Rates?
While it’s tempting to chase high returns, lower interest rate states offer a more stable entry point, especially if you’re new to the game.
These states typically have less competition, meaning it’s easier for you to get your feet wet without overbidding.
Plus, the risk is generally lower, so you can learn the process while still earning a return.
Quick Recap:
- Alabama: 12% interest, straightforward auctions.
- Arkansas: 10% interest, low competition, online auctions.
- Kentucky: 12% interest, good opportunities, manageable bidding.
- North Carolina: 8% interest, long-term play, stable.
- Colorado: 9% interest, flexibility across counties.
Final Tips for Novice Investors:
- Start Small: Focus on one or two counties in the states mentioned above. It’s easier to manage and reduces overwhelm.
- Research Auction Dates: Auctions typically happen annually, but it’s your job to stay on top of them. Sign up for alerts from the counties you’re interested in.
- Watch Out for Redemption Periods: Just because you win a lien doesn’t mean the property is yours right away. Redemption periods vary by state, so make sure you understand the timelines.
By starting in states with lower tax lien interest rates, you’ll give yourself a better chance to learn the ropes without getting in over your head.
In my opinion, the best way I’ve found to learn is by doing and “failing forward” as they say.
I bought my 1st investment property in 2020 during the middle of (you know what..cough..cough), and I had no clue what I was doing despite spending months researching how to invest in real estate.
But guess what? I did it.
And I learned a ton of valuable lessons along the way!
So, If you’re truly interested in tax lien investing, consider subscribing to my newsletter and following along my journey from landlord to “leinlord” as a new tax lien investor.
As Leinlord grows, my goal is to provide a “behind the scenes” inside look at the tax lien auctions I participate in and thoroughly profile any properties that I win.
You’ll get to ride along with me as I walk through my risk analysis, deal structures, ROI calculations, bidding tactics, and exit strategies all documented for the world to see (even my L’s).
So please show your support and sign up for my newsletter OR if you are a Google Chrome user hit that “follow” button!
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Additionally, if you’re interested in booking a consultation to talk tax lien strategy feel free to schedule a one-on-one here.
P.S. I am still fairly new to tax lien investing but willing to share what I’ve learned so far, so please keep that in mind before you book!
I’m not an expert… (yet)
Look forward to having you in the Leinlord community!
Sources:
Alabama: https://mobilecopropertytax.com/taxliensale/
Kentucky: https://kentoncountykyclerk.com/delinquent-property-tax/
North Carolina: https://www.dconc.gov/county-departments/departments-f-z/tax-administration/foreclosure
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