How to Set Investment Goals for Your Tax Lien Portfolio

8/28/2025 12:00:00 AM

Ever watch someone at a tax lien auction bidding on everything that moves? They're excited, they're aggressive, and they're probably making a mess of their investment strategy. Without clear goals, tax lien investing becomes like shopping without a list—you end up with a bunch of stuff you don't really need and no coherent plan for what to do with it.

The problem with tax lien investing is that it looks deceptively simple from the outside. Buy liens, collect interest or get property, profit. But once you're actually doing it, you realize there are dozens of different ways to approach it, and they don't all work together.

Some investors chase high interest rates. Others want to acquire properties. Some focus on quick redemptions for steady cash flow, while others prefer longer redemption periods for bigger payoffs. All of these can be valid strategies, but mixing them randomly is a recipe for mediocre results.

Start by figuring out what you actually want from your money. Are you looking for steady, predictable returns that you can count on? Or are you willing to accept more uncertainty in exchange for the possibility of acquiring valuable real estate?

If you need predictable income—maybe you're retired or planning to be soon—then you probably want to focus on liens that are likely to be redeemed. Look for properties in stable areas where owners have equity and the ability to pay. These might not offer the highest interest rates, but they'll give you more reliable cash flow.

On the flip side, if you're building long-term wealth and can handle some uncertainty, you might target liens where redemption is less likely. Properties in declining areas, vacant lots, or homes with absentee owners might have lower redemption rates, giving you better chances of acquiring real estate.

The timing of your returns matters more than most people realize. Some investors want cash flowing back to them quickly so they can reinvest or use the money for other purposes. Others are happy to have their money tied up for longer periods if it means higher overall returns.

Tax lien investing can accommodate both approaches, but you need to choose your targets accordingly. Properties with engaged owners who just fell behind on taxes might redeem quickly. Properties with complex ownership issues or significant problems might take years to resolve—if they ever do.

Geographic diversification isn't just about spreading risk—it's about matching different areas to different goals. Urban properties might offer more predictable redemption patterns but lower interest rates. Rural properties might provide higher rates and better acquisition opportunities but with less predictable outcomes.

Some investors focus on counties they know well, building deep knowledge of local markets and patterns. Others spread across multiple states to capture different interest rate structures and legal frameworks. Both approaches can work, but they require different levels of research and monitoring.

Property types can serve different functions in your portfolio too. Residential properties might be easier to research and understand, but commercial properties could offer higher returns. Vacant land might be harder to evaluate but could provide unique opportunities for patient investors.

The key is understanding what each type of property brings to your overall strategy. Don't just bid on everything—think about how each potential investment fits with your broader goals.

Consider your capacity for active management honestly. Some tax lien strategies are relatively passive—you buy liens, collect interest when they redeem, and occasionally acquire properties. Others require active property management, renovation skills, or ongoing market research.

If you're treating this as a side investment alongside a full-time career, you probably want strategies that don't require constant attention. If you have more time to dedicate or want to build a real estate business, you can pursue more hands-on approaches.

Set specific, measurable targets rather than vague hopes. Instead of "make money with tax liens," try something like "generate steady returns while acquiring 2-3 rental properties per year in counties within driving distance." This gives you criteria for evaluating opportunities and measuring progress.

Your targets might include return thresholds, geographic limits, property types you're willing to handle, or time horizons for different investments. Having these boundaries helps you avoid getting caught up in auction excitement and bidding on things that don't fit your plan.

Build in flexibility for learning and market changes. Your initial strategy probably won't be perfect, and markets evolve over time. Set review periods—maybe annually or after completing a certain number of investments—to evaluate what's working and what isn't.

Some investors start conservative with predictable redemption-focused strategies, then gradually add more speculative elements as they gain experience. Others begin with property acquisition goals but shift toward income-focused approaches as their circumstances change.

Track your results against your actual goals, not just overall returns. If your goal was steady income but half your liens are tied up in non-redeeming properties, that's a strategy problem even if your total returns look good. If you wanted to acquire properties but everything keeps redeeming, you need to adjust your targeting.

The beauty of tax lien investing is its flexibility—you can structure it to serve many different financial objectives. But that flexibility becomes a weakness if you're not clear about what you're trying to achieve. Spend time upfront getting clear on your goals, and you'll make much better decisions when you're sitting in those auction rooms.

This blog post is for informational purposes only and should not be relied upon as financial or investment advice. Real estate investments carry risk and individual results will vary. Always consult with your team of professionals before making investment decisions. The authors and distributors of this material are not liable for any losses or damages that may occur as a result of relying on this information.