Although it?s true that you can get double-digit profits from tax lien investing, it?s not always likely.?I get questions from investors all of the time asking if it is still possible to get high interest rates on tax lien certificates given the competition and the institutional bidders at the tax sales. Tax lien investing has gotten more competitive in the last few years for a lot of reasons.
Here are a few of them:
1. ?Popularization of tax lien investing by national and now world real estate investing gurus that make tax lien investing sound like an easy way to get rich ? which it?s not.
2. ?Online tax sales, which are getting more popular with counties, increasing the competition at tax sales by making it more convenient for investors to bid at the tax sales.
3. ?The increased availability of information online for doing due diligence on tax sale properties, so that even foreign investors can invest in the online tax sales without having to physically come to the US to do due diligence or bid at the tax sale.
4. ?More banks and financial institutions getting involved in tax lien investing as they are looking for safer investments.
5. ?More individual investors looking to get involved in tax liens as an alternative to the stock market.
So how can the individual investor compete with the big companies and still get high interest rates on tax liens? Especially when in some states the interest rate is bid down competitively at the tax sale. Here are some strategies that I have used and that I know other investors use in order to keep their returns on tax lien investing high:
1.? Do not invest in the online tax sales, go the physical auctions instead. It?s always better to attend a physical tax sale than it is to invest in the online tax sales. And sometimes even then the interest rate gets bid down so low, or the premium bid up so high, that it is not worth buying a lien.
2.? Set your limits and stick to them. Know just how low in interest, or how high in premium you are willing to go and stick to it! That may mean that at some tax sales you don?t buy anything and it may mean that you have to attend more tax sales in order to get the liens that you want.
3.? Go to out of the way places. If you only go to popular municipalities or counties where many people want to work or live, you are going to have a lot of competition. I try to go to rural areas away from the nice suburbs where everyone wants to live.
4.? Don?t go after the liens that everybody else wants. Everybody wants to bid on liens on pretty houses in nice neighborhoods, but what about vacant land that can be developed. Most of big companies don?t like buying tax liens on vacant land so it?s less competitive.
5.? Forego the larger liens for the smaller ones. Most of the institutional buyers want the larger tax liens. I like to go after smaller liens ? not too small, I generally like them to be at least $200. But I don?t bother doing due diligence on any liens over $1500 because I know that the big companies will be fighting over those.
Of course every state is different, and each sale can be different from one year to the next. So that one year you?ll go to a tax sale and be able to buy a few good liens and the next it will so competitive that you won?t be able to get any. I think that it is a good idea to really get to know one particular area, whether it?s one county or a few counties in one state. The idea is to get to know the property values well enough so that it doesn?t take you very long to do your due diligence and get to know your competition as well. That way you?ll know which properties every one else is after and which liens may be less competitive at the tax sale.
By Joanne November 15, 2010 - 8:47 pm
Hi Jeannie,
This really depends on the area. Some counties in some states have restrictions on how many lots you can own in a subdivision. This would not be a problem unless you actually got to foreclose on the property, just check it out when you purchase the lien so you don’t have to worry about it later on.
Also you have to consider the value of the property, what would it be worth the average person who would have to spend the money to put the roads and utilities in before they could build? You have to consider what the property is worth in the condition it is in, not once all the improvements are made, unless you have the capital to make the improvements.
I personally would pass on buying liens on properties that did not have roads or utilities in yet, unless I saw that the building was in the process of making these improvements. Sometimes builders will allow properties to go to a tax lien sale. It actually buys them some to pay the taxes and redeem the lien. They can redeem the liens as they sell some of the building lots.
By Jeannie November 11, 2010 - 7:55 pm
What about vacant land in a subdivision that is already divided into parcels for single family homes that a developer let go to the county but does not have any of the municipal roads completed? The vacant properties I am looking at all have physical addresses. Is this a safe investment or is there more to owning these properties than meets the eye?
By Joanne November 9, 2010 - 8:34 pm
Hi Natasha,
First you follow all of the normal steps for due diligence that you would do for any tax sale property, but there is one more thing that you need to do for vacant land. And that is to check with the municipal or county zoning officer to see what is the zoning and whether or not the parcel is buildable. You need to do this before you purchase the lien not after. Because what good is it to have a lien on an un-buildable piece of property!
By Natasha November 7, 2010 - 4:48 pm
What about vacant land that can be developed? Can someone help me with steps should I follow investigating vacant land in MD State . I am talking about stage after purchasing lien and when you have to make decision go in deed.