Here is my assessment of what’s been happening with tax lien investing this past year, what’s ahead for the future of the industry, and what I’m currently doing to insure profitability with my investments.
Tax lien and tax deed investing have gotten extremely competitive in many states over the past couple of years. As more counties are conducting their tax sales online and big banks and hedge funds are jumping into tax lien investing, it’s getting difficult in some states to get good deals. There are still some places where the individual investor can get properties (deeds or redeemable deeds) and good returns (tax liens and redeemable deeds), the key is doing your homework ahead of time and finding the better places to invest. The states with the highest interest rates, in which the interest is bid down, and have online sales, suffer from the toughest competition.
Things are not always as they seem
Just look at the results of some of the online tax lien sales from Florida – where the interest rate is bid down to 0.25% on most liens. Even though you are likely to get 5% penalty instead of the annualized interest rate that you bid, it’s doesn’t seem like a good deal compared to the average interest rate that investors got in the online tax sales in Arizona for instance. But there is a reason why investors are willing to bid so low in Florida, besides the fact that they get the minimum 5% penalty instead of the interest rate. In Florida you don’t pay your subsequent taxes until the redemption period is over and you apply for the lien to go into a deed sale. When you submit the deed application, as it is referred to, you must redeem all the subsequent liens and get all the taxes current. Then all your subsequent payments start accruing interest at 18% until the lien is either redeemed or sold at the deed sale.
Florida vs. Arizona
In Arizona, however, many counties expect you to pay the subsequent taxes when they are due. They will even send you the bill. And some counties will sell your lien in the following tax sale if you don’t pay them! But you only get the interest that you bid at the tax sale on your subsequent tax payments. So bidding down to 2%, as happens frequently in Maricopa county, is not profitable at all.
Plus the Arizona counties will charge you for the privilege of paying the subsequent taxes. When you purchase liens in the online Arizona tax sales you get charged $10 per liens from the county and $10 per lien from the auction company. The county charge is built into the price of the lien, and you don’t make interest on that amount. So if you buy a $100 lien, interest only accrues on $90, plus you wind up paying $110 for the lien.
They nickel and dime you for everything in Arizona, so that if you purchase small liens in their online tax sales, you can actually lose money on your investment. If you plan on investing in the Arizona tax sales this spring, forego the smaller liens and go after the larger ones. You might also want to restrict your bidding to decent building lots. Liens on vacant land can be won at higher interest rates then liens on single family houses.
What About New Jersey?
I only went to a handful of New Jersey tax sales in 2016. I found them very competitive this last year, as they have been for the last 4 years. Because of this I attended only half as many tax sales in 2016 as I had the previous year. I also invested in another private tax lien fund. In this competitive environment, I am content to let someone else who is an expert do all the heavy lifting for me. I’ve also looked through a few secondary tax liens in hopes to find something worth while, but I’m finding that most of the secondary liens on the market are not good investments. Do your research carefully if you’re looking to purchase secondary tax liens.
Tax Lien Investing Fund
I’m grateful that I was able to invest in another tax lien fund this year and that I had previously investing in 2 private tax lien funds – one in 2008 and one in 2010. These funds are still making good returns. The fund company that I am invested in opens only one new fund a year. Some years they do not take new investors, but when they do start up another fund that is open to new investors Tax Lien Lady members, coaching clients and students are among the first to find out about it.
Coming up in 2017
This year I plan to have one or more live workshops in Tennessee. My team and I are researching some TN Counties to find some good tax sales to attend this year with students. We’re also considering doing events in Texas, and possibly Florida. Also my colleague and good friend Rick Dawson has just unveiled his new Tax Sale Sniper software. I’ve been trying it out and it’s awesome! I’ll be incorporating trainings for this time saving tool to members of the Tax Lien Accelerator™.