Tax lien investing is a topic that is making the news these days, both nationally – as in the Forbes 2013 Investment Guide, and in local newspapers. Here’s a recent article from the Denver Post about the past Denver Tax Sale: http://www.denverpost.com/business/ci_22278130/tax-lien-investing-is-game-even-hedge-funds.

You might want to read the article as what happened in Denver is a trend that has been happening around the country. And the news is a little disturbing to tax lien investors. Here are some things that I took away from the article:

1. There have been less liens available each year from 2009 – 2012
2. There has been more money paid for liens each year from 2009 – 2012 (which means a lower interest rate for investors)
3. There are more institutional investors involved in tax sales and they’re buying up a big portion of the liens – according to the Denver Post article, one company bought nearly a quarter of all the tax liens sold by the City of Denver in the last 2 years.

So what does this really mean and what does it say about the future of tax lien investing for the individual investor and about what is really going on in the economy. You might think that because there are less and tax liens available each year from 2009 to 2012 that the economy and the real estate market are turning around. But I don’t think that is the case.

In my opinion what is really happening is that deed grabbers are buying some of the properties before they hit the tax sale, and that banks are paying liens on other properties to keep them out of the tax sale and protect their interest. I noticed with my own lien investing that liens are on the average being held longer than they were a few years ago. When the liens do redeem, seldom are they redeemed by the property owner. Most of my liens that redeem are being redeemed by a bank or mortgage company.

So though there are less liens available, I do not believe that this is a good sign for the economy. More and more hedge funds are getting into tax lien investing because as the Denver Post article suggests, tax liens are safer than the stock market. And though with the stiff competition interest rates are lower, other safe investments are also suffering from lower returns. This will happen as long as the fed keeps the prime rate artificially low. When other safe investments are more attractive to fund managers they will not be willing to pay as much for liens as they do now. But in the meantime the small investor has to deal with the competition, or get out of the game temporarily, especially if they have access to higher yielding investments.

In my next post I’ll talk about what would be a good strategy in light of current tax lien investing events. But in the meantime I’d love to get your take on it. Leave your comment below. In order to reduce spam it is neccessary to be a registered subscriber of this blog to comment, but it’s free to register.