Letter from a New Tax Lien Investor

Letter from a New Tax Lien Investor

I receive quite a number of emails every month from new tax lien investors expressing disappointment with the auctions they attended.  At best, they spent hours and hours researching how the sale works, reviewing properties and attending the auction only to be left with no liens to purchase at a reasonable rate.

At worse, they spend thousands of dollars on a ‘hyped up’ training program or seminar and then buy a bunch of nearly worthless liens

I received an email from a new investor in Colorado.  He gave me his permission to share it with you as I think it reflects the experiences of many new investors in the current market.

Here’s his email (my emphasis added):

As a newbie to Tax Lien Auctions I wanted to share my experience with you that I had today at auction.

I live in Arapahoe County, Co and we had our electronic auction today and I spent a couple months preparing myself for today.

I wanted to invest $10k so I deposited $1,000 with the auction site. I did my homework and reviewed the liens I wanted to purchase. I knew that in order to make money I should pay the smallest premium possible so on liens like $3-5k I entered a premium of $21 in advance. If it was small liens like $400 I would bid by proxy $5-$8. I knew that if a certificate was redeemed within a month you wouldn’t make much interest on a 10% interest rate.

By the time auction had opened I had about 77 bids totaling $33k. I wanted to go way over in case I didn’t win most of my bids.

Boy was I in for an awakening when I checked out Batch1 in which I had no positions.

After Batch 1 closed I checked on the winning bids and I was shocked to see that most bidders were bidding very high for a Lien.

Here is a snapshot of some of the bids. In checking a sampling of them I can see that the average percentage of the Premium to the Tax lien was around 6-7%. Even IF the lien was not redeemed for a year that would leave the purchaser/bidder with a return of 3-4%.

I went into Batch 2 which would close an hour after Batch 1 and started adding a lot more bids. I didn’t have time to research but I knew that if I wanted to win some liens I would have to enter more bids.

One thing I didn’t want to do was do what everyone else was doing by bidding high. I knew that if I did that I would more than likely not see a return at all or if so it would be very small and I should have kept it in a 1% interest bearing savings account.

Well, I didn’t win anything in Batch2. I bid even more on Batch 3 and I did add like $5-$10 per bid over what I thought I should pay.

This didn’t help.

On Batch 3 I did win 3 bids for a total of $140 with a $15 premium. I doubt I will get back 100% of my money. Luckily these 3 liens are vacant land so maybe, just maybe I’ll end up with a treasury deed but I doubt it.

When all was said and done after 5 batches I had bid on a total of $330k in tax liens. I won only $140 worth of that.

Will I do this again next year? I doubt it.

I put well over 40 hours into this in the past 6 weeks and I have nothing to show for it but experience. At least I wasn’t foolish thinking I could get someone’s expensive properties for pennies on the dollar. I was just looking for a good way to earn 8-9% return on my money with little risk.  I think most of these bidders are in for a rude awakening when they look at their outlays vs. what their returns will be.

What are the Five Best States for Safety on Your Tax Lien Certificates?

What are the Five Best States for Safety on Your Tax Lien Certificates?

In my last post, I discuss what I thought were the best states to consistently earn a high yield on your tax lien certificates.  Today, I want to discuss the reason why I chose tax lien investing for a majority of my investment capital.  It’s all about safety of investment.   You’ve probable seen all of the hype about “no risk investing” etc etc.  I hate that crap.  There IS risk to any investment and tax liens more than others. 

However, if you know what your doing and do your due diligence, tax lien certificates can be extremely safe.

And why not?  They are ahead of just about every lienholder.  You basically step in as the government authority and the lien-to-value ratios can be less than 1% of the value of the house.  Who’s going to lose their $200,000 home over a $1,500 tax bill?  And more so, what mortgage company in their right mind would allow this to happen.

I’m not going to go on about how you can lose money in tax lien certificates–you can read my earlier post about the risks of tax lien investing.  I want to focus on those states that you can safely put your money in and rest easy every night.  You won’t earn a huge double-digit return, but I’ll guarantee its better than putting it in the bank.

Arizona

Arizona tops my list for the safest place to buy tax lien certificates.  It’s a bid-down state meaning that you don’t have to bid more than the delinquent taxes and the millage rate is very low compared to other states.  For those new to tax lien investing, the millage rate is the percentage of the value of the property that is taxed.

So, you’re total investment should initially only be less than 2% of the actual value of the property.  Plus, Arizona has a (more…)

Three Strategies for the Florida Tax Certificate Auction

Three Strategies for the Florida Tax Certificate Auction

With the Florida tax certificate auctions about to kick off, I wanted to discuss three strategies to employ that should get you higher risk-adjusted rates.

First, the tax certificates on the best properties in the auction usually are picked up by larger institutional buyers and the minimum bid.  This means that the bid all the way down to a .25%.  By statute, the certificate holder will earn the larger of the 5% penalty (earned from the day you purchase the certificate) or the bid rate.  So, these institutions are able to accept the 5% rate and they are betting that the majority of the liens they buy will redeem in less than a year.

If you’re looking to earn more than 5% yourself, you’ll need to bid on properties that these larger players don’t bid or or bid higher rates on.  I’ll discuss three possible strategies that will give you an advantage over these buyers and possibly earn you up to 18% on your investment.

You can also find a much more detailed discussion about strategies and FL tax lien certificate investing from my new E-Book exclusively on Kindle: A Beginner’s Guide to Investing in Florida Tax Lien Certificates 
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