Yes, it's true that buying tax liens and tax deeds has the potential of producing a handsome return. On the other hand, if proper measures are not followed, purchasers could lose a great deal more than just the principal investment.
Typically beginning investors do not realize a purchase of a tax lien or tax deed in their personal name could expose them should anything go wrong with the property or the purchase. Personal liability isn't restricted to just personal injury cases. It also includes environmental issues, surviving liens and a host of other harmful yet unforeseen problems.
In my opinion and experience the purchaser can usually side-step an array of unforeseen yet potentially problematic scenarios by shifting the liability to a corporation or legal entity. I said "usually" because if the corporation is not established and managed correctly courts can pierce the corporation and hold the owners and/or shareholders liable. This can happen if the court determines that the legal entity formed was nothing more than just an 'alter ego' of the owners and/or shareholders.
To avoid being labeled an 'alter ego' corporations must setup separate bank accounts, hold regular corporate meetings, keep a record of meeting minutes and above all keep business dealings separated from its shareholders and/or owners.
Now I'm not an attorney but I've discovered that it would be a good idea to seek the guidance of an attorney for help on selecting, creating and maintaining a legal entity. Failure to create and maintain the legal entity correctly could allow its shareholders and/or owners to be held responsible if anything should go wrong.
Generally an attorney will instruct investors to purchase and sell real estate with an S-Corporation (small corp) or C-Corporation. They often encourage investors to use an LLC or Limited Liability Corporation as a holding entity.
So in practice investors would buy tax lien certificates and tax deeds with an S or C Corporation. Once they become the owner of the property they could either sell it or rent it. If the investor decides to keep the property they usually will maintain ownership of that property in an LLC. This allows the investor to collect rental income while the property appreciates.
In conclusion, I want to stress how important it is for you to seek the guidance of an attorney when selecting, creating and maintaining a corporation or legal entity prior to purchasing tax lien certificates and tax deeds