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 either the interest rate gets bid down real low or the price gets bid up quite high. They say it’s better to buy liens or deeds that did not sell at the auction directly from the county. They claim that there are huge numbers of liens left over from the auctions.
There are a few problems with this strategy…
The truth is that not all counties sell the left overs, many do not. And 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. And those that are left over, were not bid on at the tax sale for a reason.
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. Why? Because many of these properties have been vacant for a long time. They 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. Even though there is a lot of competition, you can still get good results at the tax sale auctions. It’s simply a matter of doing your homework; 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 redeemable deed from another investor, you are purchasing a lien or deed on a property that someone else but at the tax sale. They already did the due diligence. 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 can make money if the lien or redeemable deed redeems.
Why would an investor want to sell their lien to you?
Some investors are 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 is over and it 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.
That’s why I’ve added an entire module to this Advanced Tax Lien Investing Secrets training. Module #8 is on advanced strategies for investing in tax delinquent properties. And one of the strategies I teach you how to do correctly is buying secondary tax liens and redeemable deeds. You can check out this 8-week live training at http://Taxlienlady.com/book/advanced-training
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