Funding Your Tax Lien Investments

6/5/2025 12:00:00 AM

Getting into tax lien investing doesn't mean you need to show up with a mountain of cash-but it does mean you'll need to think carefully about where your investment capital will come from. Whether you're just starting out or looking to scale up, choosing the right funding strategy can make a big difference in how fast you grow and how much risk you take on.

For many people, the simplest route is using personal savings. This gives you full control-no interest, no partners, no outside strings attached. If you've set aside funds specifically for investing, tax liens can be a smart way to put that money to work, especially if you're looking for relatively low-risk, interest-earning assets. And as your liens redeem and you collect payments, you can roll those proceeds right back into new purchases, allowing your portfolio to build up over time.

Some investors take it a step further and create a dedicated fund just for tax liens, keeping it separate from other financial activities. That kind of intentional setup can make it easier to track your returns, manage cash flow, and stay focused on your long-term goals.

But what if your personal savings aren't enough to get the momentum you want? That's where creative strategies come into play. One option is to partner with others-maybe friends, family, or fellow investors-and pool your resources. You'll want a clear agreement in place, of course, but it's a way to access bigger deals and share the risks and rewards.

Another route some investors explore is using credit-either personal lines or a business line of credit. This isn't for everyone, and it comes with more risk, especially if you're not 100% confident in the timing of your returns. But in the right scenario, borrowing at a low interest rate to invest in a higher-yielding lien could make sense. Just be careful not to overleverage, especially when you're still learning the ropes.

Then there are the retirement account strategies-and this is where things can get a little more advanced. With the right setup, you can use a self-directed IRA or even a solo 401(k) to buy tax liens. These accounts give you access to tax-advantaged investing, and some allow what's called "checkbook control," which means you can write checks straight from your retirement fund to pay for lien certificates. That said, the rules around this are strict, so it's crucial to work with a qualified custodian or financial advisor to avoid running afoul of IRS guidelines.

Even within the retirement space, there are variations. Some investors prefer using Roth versions of these accounts so any gains grow tax-free. Others set up LLCs or trusts to hold their tax liens, adding an extra layer of asset protection and sometimes helping with tax efficiency. These structures aren't necessary for everyone, but they can be worth considering if you're serious about making tax lien investing a long-term part of your wealth-building strategy.

The truth is, there's no one-size-fits-all when it comes to funding. Your best option depends on your current financial picture, your risk tolerance, and how hands-on you want to be. The good news is, whether you're investing $500 or $50,000, there's likely a path that fits your situation-you just have to know where to look and, ideally, get professional guidance to help you make smart, sustainable choices.

At the end of the day, the most important thing is to make your money work for you. The more intentional you are with your funding approach, the more confident and strategic you'll feel every time you place a bid.

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.