Anyone here ever buy tax lien's?

Joeaksa · 02:14 PM

Anyone on the forum ever look into or actually buy tax liens? A good friend of mine is doing this and making good money on it. This is where if someone does not pay their property taxes in time you pay for the taxes and are put first in line on the property. Cost ranges from a few hundred bux to a lot of money, depending on the value of the property.

The % you make depends on which county you buy them in, but here in Arizona it seems to be pegged at 16%. Some places in Oklahoma are as high as 40% and certain places in Texas are as high as 50%.

Since this rate of return is guaranteed by the country you buy it in, you will either get your money or the property, so is very hard to beat in most cases.

Am looking at sticking some of my excess funds into something like this and playing with it for a while. Getting 16% is a hell of a lot better than a CD or the like at 2.5% at the bank and this is just about as guaranteed or at least it looks this way!

Joe

gatotom · 06-02-2008, 04:20 PM

Joeaska, I got wind of tax liens about 5 yrs ago and looked into it. I can't off the top of my head tell you the name of the co., they were buying the liens in the South mainly. It was a legit co. but after waying all sides, I decided not to do it. I did give my contact to a good friend who actually bought some and created a fund for other people to invest to buy more liens. Their main hope was to get that sweet lien that wouldn't pay up and get a great piece of property for a song and dance and thus selling it for a huge profit .

Call me stupid but I couldn't do it because you are making money on the unfortunate folks that either fell on hard times or went over their head.

Joeaksa · 06-02-2008, 04:50 PM

Tom,

Thanks and for the most part the liens around where I would do this are large companies. One of them is actually the state of Arizona, so I could care less if they are stupid enough not to pay their taxes.

Might just play with this. Getting 16% guaranteed is pretty good return on your money.

Joe

Dantilla · 06-02-2008, 05:23 PM

I almost bought a few from Colorado a couple years ago.

I think a big key to success is to define what you're good at, and do that. I know real estate, so it's not too much of a stretch to dabble in tax liens.

I've seen friends get clobbered by following a crowd into an unknown area to invest. I don't want to do that. I need to educate myself a bit more before jumping in to tax liens.

kstar · 06-02-2008, 05:28 PM

Quote:

Originally Posted by Joeaksa

. . . snip . . .

Might just play with this. Getting 16% guaranteed is pretty good return on your money.

Joe

I'm no expert on buying tax liens, but I do question the "16% guaranteed" part. Yields are a function of risk, so I would think that a 16% yield comes with a commensurate risk.

It's the "no free lunch" school of economics.

2¢

Best,

the · 06-02-2008, 05:30 PM

No investment is ever going to give you a guaranteed 16%.

berettafan · 06-02-2008, 05:39 PM

went to a tax lien sale in my county a few years ago. one lady bought EVERY single half decent property and paid just a hair under (or over) market price for every one.

the comical part was the return rate in our county is/was lousy vs. other counties AND if she got stuck with any of the properties it wasn't a windfall.

berettafan · 06-02-2008, 05:41 PM

BTW, you don't necessarily get an interest check every month or even every year. you may not get paid until the property is redemed. OR you might not get paid at all if the owner defaults and you end up owning a dog.

bad decision making in that field can leave you cash strapped in a big hurry.

Joeaksa · 06-02-2008, 05:44 PM

Quote:

Originally Posted by the

No investment is ever going to give you a guaranteed 16%.

Then the states are lying to you?

Joeaksa · 06-02-2008, 05:47 PM

Quote:

Originally Posted by berettafan

BTW, you don't necessarily get an interest check every month or even every year. you may not get paid until the property is redemed. OR you might not get paid at all if the owner defaults and you end up owning a dog.

bad decision making in that field can leave you cash strapped in a big hurry.

Thats not a problem here. Do not need steady income from this. I am talking about putting some extra funds that I do not need for the next 5-7 years.

Would only buy the lien's on property that I would not mind having should things default. Still, if you would pay say $5k worth of taxes and end up with $1-200,000 worth of property then it would be difficult to say that you got a dog.

Eric Coffey · 06:29 PM

Joe,

The way it works here (Maricopa County) is via tax lien cert. "auction" once a year. All of the tax-delinquent properties are issued liens, which you get to bid on. But, what you are bidding on is the interest rate itself. It starts out at the max of 16%, and people bid down the rate to whatever the lowest % of interest/return they are willing to accept.

On most decent properties, it usually ends up between 5-10%. But yes, it is a GUARANTEED investment, and you are paid directly from the county treasurer. The property owner will either redeem and pay the taxes (+ your interest rate)
OR, if it isn't redeemed in 3 years, you can foreclose and get the property (free and clear of all junior liens) for a song.

Keep in mind that about 96% redeem, so it is usually seen as a solid investment vehicle, rather than a real-property portfolio building vehicle. BUT, for that off chance that the owner doesn't redeem, you want to be sure that the property is desirable/saleable, AND as described by the assessor. In other words, due diligence is key.

the · 06-02-2008, 06:41 PM

Quote:

Originally Posted by Joeaksa

Then the states are lying to you?

No, the state is not lying, you are just misunderstanding the process, and what "guaranteed" means in that context.

kstar · 06-02-2008, 07:03 PM

Eric's explanation makes sense, i.e. the folks or "market" bid down the yield to an acceptable risk/reward ratio based on the property.

If there were truly a guaranteed return of 16%, money would flow to it like a pack of wild dogs to a three legged cat (thanks to Mike, IROC, for that quote!).

I bet the high yield properties are the worst and the trophies are the lowest yield. So, buying these liens is not some magical money pot, just another business like so many others.

All, IMHO.

Best,

Joeaksa · 06-02-2008, 07:24 PM

Eric,

Thanks and did not fully explain the situation. The "tax lien sales" are indeed held in Feb of each year and its an auction process.

The amount of the interest can be bid down but after 31 May (last weekend) if there are any properties that have outstanding tax bills against them then they are open for purchase AT ANY TIME. These properties have no bidding on them and if you take the lien you get the full 16% return.

If I buy a tax lien property this week when everything is opened up, eventually I will get either my 16% return on the tax amount or the property when I foreclose on it in 3 years.

THE,

I understand the process just fine. If the above is not correct then please let me know.

the · 06-02-2008, 07:27 PM

Quote:

Originally Posted by kstarnes

Eric's explanation makes sense, i.e. the folks or "market" bid down the yield to an acceptable risk/reward ratio based on the property.

If there were truly a guaranteed return of 16%, money would flow to it like a pack of wild dogs to a three legged cat (thanks to Mike, IROC, for that quote!).

However, as you point out (and only makes common sense), if there were an investment where you were guaranteed to not lose your principle, and were guaranteed 16% interest on your principle until repayment, people would not be getting paid $XXX million per year to manage funds to try to beat the S&P.

I'm not saying that tax liens can't be a good investment. But there are risks, it is possible that at the end of the day you lose all of your investment, or even more than your initial investment if you count additional expenses (like legal) if things go sideways. Things can happen, such as a bky filing, that can throw a wrench in things, including in lien priority.

the · 06-02-2008, 07:37 PM

Quote:

Originally Posted by Joeaksa

Eric,

Thanks and did not fully explain the situation. The "tax lien sales" are indeed held in Feb of each year and its an auction process.

The amount of the interest can be bid down but after 31 May (last weekend) if there are any properties that have outstanding tax bills against them then they are open for purchase AT ANY TIME. These properties have no bidding on them and if you take the lien you get the full 16% return.

If I buy a tax lien property this week when everything is opened up, eventually I will get either my 16% return on the tax amount or the property when I foreclose on it in 3 years.

THE,

I understand the process just fine. If the above is not correct then please let me know.

That sounds correct.

My only point was there is no guarantee you will get 16% and the return of your principle back. You might, or you might lose it all. There are a lot of issues that need to be understood, esp. re the title to the property, liens, the value of the property, and bankruptcy issues (and probably lots of others).

Like all things financial, it isn't that easy. Lots of brilliant people are out there trying to beat the S&P for a return, it isn't that easy to do. (Of course other than the investors here on PPOT who routinely get 40% returns in the stock market, or 25% in bad years, and whose houses are of course continuing to appreciate during the decline).

HardDrive · 06-02-2008, 08:10 PM

Quote:

Originally Posted by the

No investment is ever going to give you a guaranteed 16%.

Porn and drugs seem to do well year after year.

Danny_Ocean · 06-02-2008, 08:12 PM

I do not think a tax lien supercedes a mortgage.

There was a news clip here recently showing a mother/son buying their first "tax lien" property. It was a house that had sold at the top of the market for $360,000.00, now worth about $250k. What they didn't realize is once they assumed the property via tax-lien, they also assumed the "lien" placed by the mortgage holder. You should have seen their faces when the news reporter gave them the real scoop.

Not sure how it works elsewhere, but here in FLA, you have to check for all liens on a property (code violations, Fed Tax Liens, mortgages, etc.). These become your responsibility.

Eric Coffey · 06-02-2008, 09:46 PM

Quote:

Originally Posted by Danny_Ocean

I do not think a tax lien supercedes a mortgage.

Tax liens are almost always in first position. That is why lenders hold impound accounts to pay the property tax for you. They want to control the payments (and they usually pay early) to protect their investment.

KFC911 · 06-03-2008, 03:14 AM

If it sounds to good to be true... I really don't know squat about these, but I've always heard that you "can" put a lot of time & effort into it, then at the last minute, the owner "pays up" and it's just not worth it for most.