If you’ve invested in any of the tax lien auctions over the past few years, you will have noticed that things are changing. Interest rates are bid down to new lows and in states where premium is paid for tax liens the premiums bid are getting higher and higher. There are more and more big fund companies and banks involved in tax lien investing driving profits down for everyone. The market is changing and new strategies are evolving for the individual investor to get those high returns in today’s market place. Read on to learn of a couple of new strategies that I’ve just discovered this past year, for investors to make money on their tax liens and redeemable tax deeds regardless of the competition.
All Time Lows for the Tax Lien Market!
As you may have realized, buying a good tax lien nowadays is a rather challenging exercise. In many places, the market is simply overcrowded with big players who have significant funds to invest, who buy entire portfolios of liens, bidding down interest rates to ridiculously low numbers. These buyers are fuelled by huge hedge funds and the federal banking system who are lending them money at zero interest. Obviously, an individual investor can’t possibly have access to this kind of “credit line”. Therefore, participating in some of these popular tax sales (the Florida online tax sales come to mind) is no longer profitable for the individual investor, unless you are content with interest of a quarter percent per year. And even at that, you are not guaranteed to win any bids against all other players bidding that low rate.
New Strategies for Making Money In Today’s Market
So what can the individual investor do? Many of you have looked into attending smaller auctions, going to the OTC sale, buying from a secondary market… all of that is great, but is there a consistent way to play against institutional buyers on equal terms? If you come from a financial background, as I do, you know that there is a way to profit from any predictable supply and demand situation. Tax lien auctions are no different.
Let’s imagine an ultimate goal to get a 10% return on your principal, but you’re in a market where interest rates are bid down super low. Using a long-term perspective you can build your portfolio in such a way that you’d still be exposed to a 10% return per year, but only after 2 or 3 years (you’d receive 36% in the end). This is achievable through building a portfolio of liens where some of them will end up in foreclosure. Now you are no longer going after an annual return on each lien, but looking at a different perspective – how likely your liens are to foreclose.
In order to meet the objective and also minimize the risk, your portfolio must be diversified – so that you have enough capacity to execute on these liens that go into foreclosure. Obviously, buying and managing hundreds of liens is a hard task for the individual, so in order for this strategy to work, the interest vested (and exposure to deal with foreclosure) on each tax lien must be limited. Limiting your exposure means that if multiple liens foreclose and you don’t have capacity to deal with all of them, then your loss is limited to only a portion of your principal.
Speaking of loss, why take any loss at all? Securing access to liquidating your lien is also possible (yes, there is a tool for that too). While selling it directly on a secondary market could be a time-consuming exercise, taking the same approach as funds do (e.g. joining into a group with other investors who pre-agree to buy your liens) is a quicker and easier way to profit that is beneficial for all members of such a partnership.
Another interesting factor often overlooked by tax lien investors is opportunity to “double dip” by buying tax lien in a different country (and paying in different currency). For instance – as consequences of oil price plunge, the Canadian Dollar exchange rate has significantly dropped against the US dollar. Buying some of the Canadian tax liens (paid in Canadian dollars) is not only a great way to diversify your portfolio, but now also comes at a 20% discount compared with last year. This, of course, introduces a limited currency risk in your investment, but with higher benefits.
Special thanks to Victor Vilmont, prominent tax lien investor and investment club manager, for his continued work on introducing me and others around the globe to these concepts.
Stay tuned to find out more about these and other strategies to increase your profit in tax liens and tax deeds. I will be introducing a special advanced training on this strategy very soon, so keep your eyes peeled on your inbox!
Don’t miss our next free teleseminar training Wednesday, June 3, at 8:30 – 9:30pm Eastern Time, and find out more about How You Can Profit Faster from Tax Liens No Matter What You Bid!