There have been less tax liens available and more competition for these liens each year for the last 4 years, so how can you adjust your tax lien investing strategy to be successful this year?

I know that most new investors want to concentrate on single family residences, they feel that this is the safest investment when buying tax liens. However consider that everyone, including the institutional buyers, are thinking the same thing.

Everyone wants to buy liens on single family residences, because they believe that these liens are most likely to redeem. The problem is that the institutional buyers are using tax liens as a hedge and they are happy with single digit returns. They don’t mind paying high premium that lower their returns to 4 or 5%, or bidding the interest down that low because they can’t park their money securely anywhere esle at higher rates.

One thing that you can do is get the results of last year’s tax sale and find out what type of properties were bid at higher rates or lower premiums and become an expert in those types of properties. Do not bid only on single family residences. You can also find out just how much premium was paid for properties relative to the interest on the lien amount and calculate just how much you will have to pay to be successful bidding. Then you’ll know before had whether it’s worth it or not for you do all the necessary due diligence and bid at that particular tax sale.

Don’t think, as some gurus suggest that you can just buy the over-the-counter liens and get the maximum interest rate and that will be a “safe” investment. Consider that most counties have 2 tax sales. Everything that doesn’t sell in the first tax sale is auctioned in a second sale, and only if it survives both tax sales does it get on that left-over list. These lists are mostly junk properties. And since many investors want to get those high interest rates, anything good that is left on these lists gets picked up pretty fast. There are people who use this strategy successfully but you have to be able to get this list immediately after the tax sale and bid right away. This strategy works best if you’ve been to the tax sale, done your due diligence, know exactly which properties you want and can bid on them right away.

What’s your strategy for tax lien and/or tax deed investing? Let us know about your successes and challenges this year!