The biggest lie about tax lien investing is that it is better to buy the over-the-counter (OTC) or left over liens. Some experts claim that tax sales are too competitive to get liens at high interest rates or deeds at low prices. That in many tax lien and tax deed auctions, either the interest rate gets bid down real low or the price gets bid up quite high. And they tell you that it’s better to buy liens or deeds directly from the county and get the left-overs that did not sell at the auction. They claim that there are huge numbers of liens left over from the auctions.
There are a few problems with this strategy…
First of all not all counties sell the left overs, many do not. And for the counties that do sell left over liens and deeds, while it was true a few years ago that there were hundreds, sometimes even thousands of liens or deeds left over, there are not as many left-over liens today.
In the last 20 years, big business has entered the tax lien and tax deed buying arena. Yes, this has made the tax sales more competitive AND more of the liens and deeds are being purchased at the sale. There is less left over than there used to be. Even worthless properties are sometimes bid on at these sales. Because tax sales are more competitive than they were 20 years ago, less is left-over. And almost all of the leftovers are junk properties!
Do some people make money with OTC liens and deeds?
Yes they do. It can be profitable if you do it right. But it is not something I personally do, nor do I recommend it for new investors. It is a time consuming and tedious process that is not easy to do from a distance, since you must physically look at OTC properties BEFORE you purchase the lien or deed. Why? Because many of these properties have been vacant for a long time, and are uninhabitable or not build-able for one reason or another.
Here’s what I recommend instead…
First I think it’s better to get first crack at the liens or deeds available by bidding at the tax sale. And even though tax sales are very competitive, you can still get good results at the tax lien and tax deed auctions. It’s just a matter of doing your homework and picking the right tax sales to go to and the right properties to bid on – properties that not everybody wants but have value.
But what if you want to forego the auctions…
I know that there are some investors who don’t want to attend the auctions. They either can’t attend the physical tax sales because of their job, or they live in a state that doesn’t have the type of tax sales they want to bid at. So what do you do if that is your situation?
There is another way to invest in tax liens without going to the tax sale and it’s not buying OTC liens or deeds from the county. Most states allow assignment of tax liens or tax deeds. That means that you can buy a lien or deed directly from an investor who purchased it at the tax sale. This is known as a secondary lien, because you are purchasing from a secondary party, not the county or local government.
Why secondary liens can be a better investment
When you buy a lien or deed from another investor, your purchasing a lien or deed on a property that someone else already did the due diligence on. You still have to do the research to make sure that it’s a good property. But as long as you buy from a trustworthy entity or investor, your chances are better of getting a good lien or deed. You still do not want to go into this blindly there is a right way and a wrong way to buy secondary liens. They really only make sense in states where there is enough return that both the buyer and the seller of the lien or deed can make money should the lien redeem.
Why would an investor want to sell their lien to you?
Some investors are really not interested in owning property, they invest in tax liens or redeemable deeds hoping to get the return on their money, not real estate. When the redemption period comes to an end and the lien (or redeemable deed) has not redeemed, they would rather sell it and make their money than start foreclosure. There are 2 different strategies for buying these liens, one is to get the property and the other is to get the redemption in a shorter period of time than you would if you bid at the tax sale.
But just like any other investment strategy (even bidding at the tax sale), you can lose money if you don’t understand how to do it properly. See the article I wrote about “What You Need To Know About Secondary Tax Liens.”
That’s why I’ve added an entire module in my Advanced Tax Lien Investing Secrets training for advanced strategies in investing tax delinquent properties, and one of the strategies I teach you how to do correctly is buying secondary tax liens and deeds. You can check out this 8-week live training at http://TaxLienInvestingSecrets.com/advanced-training,
But hurry – Today is the last day to get in on the Live training!
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