You have probably heard about the investment opportunities in tax liens and deeds. They can be quite lucrative - possibly the most lucrative and safe investment you will ever find, if you have the necessary knowledge. This article is going to cover the first lesson you will need to learn when it comes to tax lien and deed investing… the difference between the two investments. So, let's start with tax liens.

The definition of a lien is: a claim against an item by another party, which utilizes that item as security for repayment of a loan or other claim. A tax lien is placed on a piece of property by the government when the owner fails to pay their property taxes. Now here is where the investor comes it… the government sells these liens at county auctions to investors. The investor who wins acquires a first position lien on the property. Then, the property owner has a fixed period of time to pay off the principle and all interest and/or penalties accrued-ALL of which goes to the investor.

If the owner fails to pay the taxes, interest and/or penalties you get to foreclose on the property. However, this happens about 2% of the time with liens. So, most of the time they are a hands-off investment and the interest and penalties are often time very hefty.

Now when you are bidding at an auction for a tax deed, you are actually bidding for ownership of the property. This means that if you win the auction, you become the rightful owner of the house or lot in question. With tax deeds, you have to do more meticulous research because you want to be sure you don't end up with a worthless piece of real estate.

You also have to be careful with tax deeds because certain states, such as Arizona and New Mexico, do not extinguish the liens after the auction. This means that you- the new owner of the property- have to pay them off. All you have to do to avoid this is check with the county you're bidding in, and do the proper research on the property before bidding on it.

Tax deeds are more challenging to deal with, but the returns can be phenomenal.

Some state use a hybrid system that includes both the lien and deed protocols. Here is how it works. At the auction, when you win the bidding, you become the rightful owner of the property - just as with tax deeds. However, the owner has a set period of time after this to pay back all taxes, penalties and interest owed in order to reclaim the property. This system is potentially the most rewarding of all.

So, there is your first lesson in tax liens and deed investing. I suggest learning more about this amazingly profitable and safe investment, however, before you jump into it. Good luck!