So many investors, when they decide to start investing in tax liens, want to know which states pay the highest interest rate or penalty and have the shortest redemption periods. They assume that those are the best to invest in, and that’s where the real money in tax lien investing is.

But so does everybody else, including banks and hedge funds. That makes these sales very competitive. Either the amount of the lien or deed is bid up so high, or the interest rate is bid down so low, that any profit is minimized. Investors and hedge funds are now fighting for the opportunity to buy liens and redeemable deeds for very low return on investment!

Hence some tax lien investing “experts” have recommended that investors don’t bid at the tax sales among all this competition, but instead purchase the left-over liens. But in doing so they fail to mention 2 very big drawbacks to this strategy. First not all counties sell the left-over liens or deeds that are not sold at the tax sale. Some will just rebid them year after year. Secondly, there is a reason why liens don’t sell at very competitive tax sales, and that reason is they are liens on junk properties. Although every once in a while you can find a decent property among the left-overs, it is a very time consuming process that has to be accomplished in a specific time frame. It is not something that I recommend for new investors.

Can you still make good money with tax liens?

So how does a person make good money or get double digit returns from tax lien investing? Rest assured that it is possible, and can be done. The way to do it depends on how much money you have to invest. For individual investors with smaller amounts of money to invest, I recommend these 5 things…

1. Concentrate tax sales that are not online. Tax sales where you have to show up live are competitive enough, but when they are online, the competition goes up quite a bit. Higher premium amounts, and lower interest is bid in the online tax sales than in the live sales in my experience.
2. Look for out of the way areas and stay away from big cities and affluent areas where everybody wants to live. Not only is the competition fierce in the areas where everybody wants to live, but there is less available to bid on. I like more rural areas, further away from the cities where property values are lower.
3. Go to tax sales that have a lot of properties available, especially a lot of smaller liens. As you get further away from the big cities, where the population is less dense, there can be less properties available in the tax sale. Also, many of the properties that are on the original published tax sale list will redeem before the tax sale and be taken out of the auction. You want to make sure that there will be enough properties to bid on at the time of the sale. You also don’t want to be so far away from civilization that properties stay on the market for a long time before they sell. The larger liens will bring out all the big players and hedge funds, so I look for tax sales that have a lot of smaller liens. But not too small, liens that are too small in some states, can be a waste of time.
4. You can cut down the competition by bidding on types of properties that other investors don’t want. Most investors, both big companies and small investors, want residential properties. They see residential properties, particularly single family residential properties as a safe bet. There is sometimes less competition for vacant land, industrial property, and commercial parcels. Just make sure that you do the proper due diligence for the type of property you’re bidding on.
5. Pick tax sales to go to on days where there are a lot of tax sales on the same day. Although some backs and hedge funds will attend every tax sale in a given state. In some states all of the counties have their tax sale on the same day. This is an excellent opportunity for the investor to pick a county using some of the above strategies, that the big players might not go to if they don’t have enough bidders to attend tax sales in each county. Even in states where all the tax sales don’t have to be conducted on the same day, there may some days where there a few tax sales on the same day. I like pick tax sales to go to on those days.

Following the above advice will let you have some success with tax lien investing and invest some money at high return. But you need to go to a lot of tax sales to get your money invested. What if you a large amount of money that you want to get invested in tax liens or tax deeds and you don’t want to have take months or even years in order to get it all invested?

So where is the real money in tax lien investing? It’s not where you might think! And thankfully most hedge fund managers have not figured it out yet!

Is there even a better way?

Not too long ago I went to a tax sale in a state that I’ve never been to before and I got one lien and 12% per annum (1% per month) interest. I was able to put a little over 27 thousand dollars to work at 12% a year interest on only one tax lien. At this sale I was able to pay the previous year’s and the current year’s taxes. The price of the lien was bid up at the sale, which is the reason that I was able to pay that much. And I will get the interest on the entire amount that I bid.

The best thing about this tax sale…

The best part is there were no hedge funds at this tax sale! It was a competitive tax sale, but the competition was from other investors, not hedge funds that pay too much money for tax liens, and make it hard for individual investors to get to good deals! I bid on only 3 properties and got one.

In this sale there is a minimum bid amount and it gets bid up from there. They are selling the previous year’s tax sale in the auction. However, you are also expected to pay the current year’s taxes before they issue you the tax lien certificate. Hence, I was able to pay what I bid at the sale – which included last year’s taxes and the overbid, plus the current year’s taxes.

Where was this Little Known Tax Sale?

Where was this tax sale and are there more like it? Well that’s something that I let my coaching clients know about and train them for. You can find out more about my “Get Profitable Tax Liens” Laser Coaching program at https://taxlienlady.com/get-profitable-tax-liens-laser-coaching.

Related posts:

Want To Invest In Tax Liens – How Much Money Do You Really Need? Is Tax Lien Investing Dead? From the Field: Tax Lien Investing in New Jersey