It is one of the most recommended techniques I've read in the "How to" books.

sounds like you are really getting your s--t together there jtrout. good for you it is nice to see someone so enterprising. as you grow it will get easier and more profitable good luck.

also as you do more of these you are going to find some great buys outright. that is where you can make some bigger bucks. keep on the lookout for them.

Thanks Ray. I appreciate the support. I'm slowly learning more, but it comes in bits and pieces.
In a way, it's good that info is so hard to come by. It makes for less competition.

Last August, I went to my second auction (same county). There were a few more people than the year before, but one in particular made the whole process more difficult.
There was a lady there who was representing a local businessman.
She had extrememly deep pockets (estimate she bought over $500,000 worth) and no knowledge whatsoever as to what she was doing.
I was told she went to the tax collector before the auction with an offer to buy all of the liens (app. $3 million). Of course law demands an auction at that point.

She then attempted to purchase every lien, even overbidding $100 on a $400 tax lien.
The previous year, everything under $1,500 was sold in round robin fashion, and everything over $1,500 was open to auction,
with the typical overbid being 4% - 9%. She blew that deal right out of the water.
She had the whole room disrupted, and the tax collector (who was holding the auction) completely frustrated and off his game.
He stopped the auction 5 minutes into it and gave a small speech (lesson) as to what the liens were, and that no one was guaranteed to make money.
It didn't phase her a bit.

Another 10 minutes of the same, and he stopped again and said he would take a 15 minute break, and if anyone had any questions as to what they should be doing, or not be doing, then now was a great time to find out. He didn't want to see anyone lose money.

She got on the phone and talked a bit, but when the auction resumed, she didn't slow down.
She kept buying everything til she hit her limit, then kept bidding. The secretaries assigned to keeping up with everyone's purchases had trouble keeping up, but soon recognized that she was overlimit.
Another pause, another phone conversation by her, and soon she had more bankroll.
It was a sight to see.

Bottom line is this caused a much more competitive environment than the year before.
Overbids were higher, bargains were scarce, and most everyone else in the room got less invested than they planned.

I had to adjust my strategy a little bit, but after 2 days I purchased 45 liens for a total of $40,533.20.

After 6 mos., 11 have redeemed, returning $9,014.57.
3 liens ($105.11, $189.38, $252.74) look like bad ones and I wish I didn't own them,
but given the circumstances I'm happy with what I got invested.

How are you qualifying something as a 'bad lien'? Unlikely to redeem with property not worth pursuing?

How do you determine if a lien is likely to redeem?

Great info, JTrout. My state (WA) is tax deeds, but I'm looking at potentially building a house in the next year so I'm definitely going to check out the options for the december auction.

My friend and I were going to go to Iowa to participate in these. Iowa is doing their auction right now. However, we didn't make it for the reasons below...

As we understand it, the key to the whole process is identifying liens that are backed by toxic property. (lien too big for property value, property that has other liens and tax obligations on it, property that is condemned or hazardous and will require heavy payments from the new owners, any other property where the new owner will be acquiring debts and legal obligations above and beyond property value)

But we had trouble getting all this data together and afraid of missing something. Data is in very bad shape for merging these data sources together. And just as in your state, you have to have info on all property up for bid so when you get your chance, you know if you should accept or deny.

So my question is, what is your process of doing this background check? If you don't do this right, your whole profit could be wiped out. Had your 3 bad liens been 2K, 3K and 4K instead of $150, $70, and $50, you would be braking even or losing money. (assuming that those liens are backed by undesirable real property)


I don't understand your assessment. The tax collector is acting in the best interest of the state and they want people to bid high and bid often. The state gets more money from the auction, which the whole point. Why would they be complaining about someone overbidding?

Exactly. The small liens represent small value properties (usually around 2% of assessed value). So $100 may represent a property assessed at around $20,000.
Assuming you attempted to acquire the property after the two year period required in MS, you'd have to pay $200 + interest to two other lien holders, attorney fees and court costs, and wait another 6-12 mos. in an effort to get a clean title. Little if any profit for a lot of headache.
There is a website that publishes property tax payment histories of my county, and there you can see what type of pattern the owner has in regards to payment.
The liens I called "bad" were ones that hadn't been redeemed in 3 or more years. All were small, which isn't a coincedence.
If it the taxes haven't been paid in 3 or more years, it indicates someone has the opportunity to acquire this property but chooses not to (often for reasons stated above).

Iowa is the state I'm most interested in branching out. The timing (June) makes it very difficult for me take the time due to my job.

Your concerns and strategies have merit. And one of my main concerns is not giving enough weight to the potential problems you listed;
however,
in my limited amount of experience and research I think that "toxic Properties" are few and far between.
And by staying away from certain commercial properties you limit your exposure to potential problems even more.

I'm very familiar with my county and it's neighborhoods, developers, and such.
And it gives me a certain amount of comfort and confidence playing on home court.
But (rightly or wrongly) I would also be comfortable in many counties in Iowa acquiring properties within a certain range.
The possibility of getting a major loser exists, but I think it isn't great.

Regarding your question,
"Had your 3 bad liens been 2K, 3K and 4K instead of $150, $70, and $50, you would be braking even or losing money. (assuming that those liens are backed by undesirable real property) "

It isn't a coincedence that the bad properties were that size (see post above).
Excepting commercial property, a $3,000 lien in my county will usually represent a home or piece of property worth north of $100,000.
Even if it has problems, there is significant value above and beyond the costs of trying to acquire it.
So,
you are extremely unlikely to ever get the chance, which means it will redeem. It's just a matter of how soon.
Many have notes on them, which means the bank will step in (often at the last month or so) to pay the lien and protect their note.

The number of (non-commercial) liens in my county between $2,000 and $4,000 that I wouldn't pay $15,000 to acquire is probably 0, or very very close to 0.
I have stayed away from larger liens to this point not because of the risk of loss, but because of the risk of it redeeming too soon and not having that investment working for me.

As to the lady and the frustrated tax collector, I understand your points, but you'll just have to trust me that he was frustrated.
Maybe partly because he really wanted to finish in two days, maybe he really didn't want to see someone take a bath on these liens,
maybe he understood how frustrated the other 100 folks in the room were and looked at them as voters (his is an elected position),
I can't say for sure.
But I know he was taken aback. At least at first.

What kind of tax lean is the least likely to be paid back? The kind that is backed by junky property. Basically, the owners will not pay back a lien if there is no point in keeping the property. Why pay back a 30K lien when the old house in rural area is only worth 25K? Or there are other problems...

Let's say you buy a 4K lien. How do you know the property behind the lien is worth a damn when you decide to buy that lien?

Are you saying that you are not doing any checks to see if the property is - for example - condemned and if you take possession of it you are also taking possession of a $30,000 bill from the county for tearing it down?

Are you not checking that a parcel is some random tiny strip that is both unbuildable because of size or zoning and worthless to anyone aside from the neighbor who might want to buy it for extra bigger yard? I have seen these tiny parcel strips on tax auctions. They are either end plots at end of the street, or buffer plots between houses - in both cases basically worthless since you can't build there and it's impossible to rezone.

Or the property may be facing some IRS tax lien and if you take possession of the property you will owe the IRS some huge sum of money?

I have seen all three instances of this. There are plenty of them out there. If you are not doing these checks at all, you are basically gambling it up hoping that the 1:100 ratio doesn't catch up to you. But that is something you need to consider when you calculate your EV. One big unpaid lien can wipe out your losses and more - not to mention the time and money invested.

***

And believe me, these scenarios do happen. A friend of mine took a bath on a 1x,xxx lien because he would be facing a huge bill from the county because the property was condemned and torn down. So the lien was obviously not paid back by the owner, and he couldn't take possession of the land because there was no more house and land wasn't worth more than the condemnation tear-down bill. It happens. If you are not doing these checks, you're just keeping your fingers crossed and gambling it up.

I believe you.
And I appreciate the time and thought you put into your posts.
All of the outcomes you mentioned are possible, and have happened from time to time.

I couldn't agree more with you that you shouldn't invest in something you aren't comfortable with.

And you are right that finding the info and syncing the data regarding properties and liens is difficult, time-consuming, and will always be incomplete to some degree.
I am, however, very comfortable with what I'm doing.
If I got all my money in preflop with Aces, I'd cross my fingers and hope for the best.
I don't feel that need with my liens.

The tax lien sale is coming up again this month in MS, the paper came out with the liens (20 pages), so I thought I'd give an update.

Of the 47 bought in Aug. 2010, 39 have redeemed.
I expect to right off two of the remaining liens ($158.81 and $72.25)
The other six look very promising-either receiving 36% interest, or taking title to the property.

I bought 45 liens in 2011, and 23 have redeemed, with an average return of 8% (average time 6mos.)

I'm preparing for the upcoming auction with the idea that it will be as competitive, or more so, than last year.
I'm reviewing the list of liens that I'm willing to overbid on, and the expected return.
I plan to eliminate all properties under $250 or $300, and focus mainly on the liens that will require an overbid.
My goal is to get an annualized return >10%.

Here is an example:
$1,323.39 lien.
Assessed Property Value = $81,130

The bank has paid the lien, with penalties, at the last moment each of the last 6 years.

If the trend continues, that would pay the owner the original amount plus $476.42 in interest.
I'm sure I can get this property with a $100 overbid, which would give me a return of 26% over 24 months.

Obviously there is no guarantee, and some will not go according to plan, but I'm hoping the sum of the investment will yield 10% or better annualized.

Can't wait!

About 6 months ago I purchased a property on 2 acres in a urban area at a tax foreclosure - The owner owed about 20k on the property in backed taxes......Because the property was on such a large parcel, we bought it up, and are in the process of knocking down the existing 2 family and putting up 12 new construction homes. My father has been a residential builder for about 25 years now, and we're currently in the process of getting a variance to limit the needed square footage/frontage per lot to build. The most important things before going to an auction is to check if there are any other liens on the house, the full amount of taxes due, and any other issues that may affect you depending on your plans for the property. I might make a thread soon once we get building to outline our process from piece of **** 2 family to brand new subdivision(hopefully)

Sounds like it will end up paying off very well.
I for one would enjoy a thread updating the progress, pitfalls, and payoffs!

Another example of lien I hope to get (again):

Face Value: $3,004.78
Assessed Value of Property: $139,000

I purchased this lien last year with a $200 overbid.
There has been a lien on this property every year since 2003.
The owner has paid the lien each year 16 or 17 months after auction,
paying 24% or 25.5% penalty.
If he keeps to routine, the 16 month return would be a little over $500.
16%.
If for whatever reason he decides to break tradition and pay off last year's and this year's lien in December,
I do a bit better than breakeven on the lien, while collecting the 500+ on the previous year's.
Getting it for a $200 overbid is the tricky part, as I'm sure there will be a dozen or more folks willing to pay that, and possibly a couple willing to pay $300 over.

Update-
In the remote chance that anyone has an interest, I thought I'd update this old forgotten thread. Even if there isn't any interest, I'm using it as a sort of journal, and enjoy going back and rereading from time to time.
Especially nice is the advice and words of encouragement from Ray Zee, whose stud book was the first poker book I ever read, and certainly one of the best.

A long while back Jack Nicklaus complimented me on a golf shot I hit.
Ray's pat on the back in this thread ranks right behind that on my scale of cool compliments received!

I've continued to purchase liens each year, and I'm every bit as sold on them as I was back in 2010.
They are far from a get-rich-quick scheme, but they have been a solid investment* in this day and time of low, low interest rates.

*Speaking only of Mississippi tax liens. Every state is different. Some are probably better. Many are worse.

I've been to three different counties (and one city auction) in MS, and each have had there own way of running the auction. Different overbids, different ways of striking properties to the state, different ways of handling the smallest liens. But they have all three (4) done some form of round-robin while accepting overbids.

A final tally on the liens bought in 2010:
If you read the info I previously wrote, you will see there were 3 liens I did not expect to redeem. Only one of those failed to redeem ($158.81), and I ate that loss.
But one other did not redeem that I was expecting to, and it became a bit of a saga.

I paid $601.81 for one that was a homestead property. But during the two year redemption period, the owner of the house passed away, and the house became vacant. The heirs were out of state, and had it up for sale through a real estate agent. It soon became a crack house!
When the redemption period was up, I went to see a lawyer (poker-buddy!) and went through my options.
As luck would have it, the city had budgeted a nice chunk of $ toward a revitalization project, and they were interested in taking it off my hands.

After many headaches, court dates, and worrying, I sold it to the city for $15,000, and they promptly tore the house down!
I had to pay back taxes, lawyer fees, and court costs, and ended up with a profit of a little over $6,000.
I was very fortunate!

So far that has been the only drama, but I expect there will be more.

I've not included that lien in my 2010 numbers, but all other unredeemed liens are included in the totals.

2010- 47 liens bought. 1 bad.
Paid $48,350.21 + $1,300 overbid.
Received $56,546.28

2011- 45 liens bought. 2 bad ( $189.38; $252.74)
Paid $39,333.20 + $1,200 overbid.
Received $47,448.54

2012- 55 liens bought. 5 bad* ($437; $250.56; $262.69; $429.17; $252.74)
Paid $64,523.32 + $3,900 overbid.
Received $79,760.27

*I have until late August to decide if I want to claim any of these 5 properties. Haven't ruled it out, but unlikely.


I opened up a 401K in 2013, and began putting funds in it and investing them in tax liens.
I also went to different counties in 2013, and had others buying for me.
The liens bought in '13 have 2 years to redeem, so '13 and '14 liens get broke down in several compartments.
I'll get these #'s up later, but it's time for dinner!

Happy to answer any questions I can, and invite anyone else to share their tax lien/deed experiences.

absolutely fantasic in my book. you are the true individual entrepreneur. i wish i still had your drive and work ethics. you are definitely going far and should not let up until you are as rich as you want to be.
also as i mentioned up above somewhere i think you should get into just buying some great properties and flipping or renting out. by now you know the market better than almost anyone in your area and can out think all the other buyers. just learn to think it through and act fast when you know you have the good deal. or you lose it.
yu will also get a good repore with a bank and have access to instant money at some point after you build it up. choose a bank that you are sure will work with you .
go getem buddy.

This thread is fantastic, great work JTrout and do keep us updated

Thank you both for the words of wisdom and encouragement!
I've owned a couple rental properties previously, and I agree it is a solid way to increase your wealth, and build a nice retirement nestegg. But it is not for the lazy!
The last investment house I purchased as a fixer-upper, I intended to live in it two years, do improvements, and sell for big profit. I've now lived here for 13 years and hope to be here another 50. My goals changed midgame!

Back to the liens-
I mentioned the 401K. I opened it up last year with the goal of funding it with profits from side business, and investing the funds in tax liens. I did my research, and talked to my accountant, and so far so good.

Tax liens aren't the most tax efficient way of investing, but this should help with that.
One of the main strategies I've leaned toward in buying liens has been making use of overbidding-
with the round-robin style auctions in MS, the only way you can get properties that you know and want is by overbidding.
The overbid $$ you don't get back, so it must be accounted for in expected return.

I've focused on properties that have enough value that they are unlikely to go unredeemed, and that have a history of paying at the last month.

This has meant that my money stays invested longer, which is the key to making this investment grow.
Also, I discovered that a few counties in MS hold their auction in April, instead of August.
Now I have twice a year to reinvest.
The downside of the April auctions- they are all in the delta. More risk of bad properties. Less knowledge of good/bad.
I'm taking a very cautious approach to begin with on these auctions, and we will see how they do.
But I'm optimistic they will work out great in the long run.

In April of '13,
bought 28 liens.
Paid $19,436.11 + $214 overbid.

They mature in April of '15.
So far, 17 have redeemed. Collected $13,032.69.
11 unredeemed totalling $7,802 + $2,223 accrued interest.

I skipped going back last April, but I intend to go back April '15 with the goal of overbidding on hand-selected properties.
______________________________

I attended Lafayette Co./Oxford city auctions in Aug '13.
They split the taxes into two separate liens, and two separate auctions held one after the other.
The best thing about this is that the ratio of lien to property value is twice as good!
The downside is it's not the biggest county, and all the liens are half-sized.
So getting as much money invested as I'd like to was difficult on my first trip.
I didn't go back, but I hold out the possibility of a return.

If I do, it will be with a similar strategy as above, hand-pick liens to overbid on.

I'll read through this all in a little bit but it really is interesting how much it varies state to state (and even within states).

I'm posting this right now from inside a house I bought at a tax sale in PA last year. Bought 2 houses at the sale. 1 sold off with no work done and this house put some work into it and it is on the market right now. I'm just here finishing a few minor things. Learned a ton and had plenty of issues....even one now in that it appears they deeded me an extra lot that used to be part of this but shouldn't have been on the new deed

I'd like to hear more about the process you went through in PA. I know it's more of a tax deed state. Is there any redemption period, or is final at the auction?

Was the first house sold in great shape? was it wholesaled? Were you confident you could move it quickly when you bought it? Were you able to enter either before you bid?

Very interested in hearing what you can share when you get the time.

quick update:
I went to the Delta again in April and purchased more liens.
It was much more competitive than the first April auction I attended; however, I still expect to do well with the ones purchased.

While there I struck up a conversation with another investor, and found a buyer for any and all unredeemed liens I hold!
This was a great discovery, and should lead to better returns.
The end of August is the next auction I'm attending, and I'm excited to continue along this path.

If anyone else has any tax lien/deed stories or experience, I wish you would post them here.

I was completely unaware of this form of investing and somehow missed this thread over the past 5 years it was here. Thank you so much for sharing your experience and information with us! Really an interesting read.

How do you think that woman from 2011 did, the one who was a front for a big investor? Since she didn't return, I'm guessing not so well?
Do you think the opportunities here are disappearing as the financial crisis fades into the rear view?

I'm glad you found it, and enjoyed the read! I've enjoyed writing it, and going back to see how the auctions and I have progressed.

I actually think the woman (or more accurately, her investor) did pretty good.
At that time overbidding usually fell between 5% to 9%. She was doubling that on a fairly regular basis.
In the last two auctions I've been to, the overbidding usually fell between 10% to 15%. (They keep getting tougher).
It was obvious she wasn't familiar with what she was doing, but she did get the money invested in a winning game.
I would use the poker analogy of someone that automatically folded any straight-flush. It's obvious they are making a mistake, but it isn't going to effect the overall win-rate a whole bunch.
I'd guess she got an annualized return of around 5%, maybe better.

I don't think the fading financial crisis is going to negatively effect the auctions, at least in my area. There will be no shortage of tax liens.
But the bidding has gotten more and more competitive with each auction.
Whether it's the fact that interests rates have remained so low for so long, or just more people learning of this investment (although the number of people at the auctions have remained fairly steady), I've had to downwardly adjust my accepted return in order to get my money invested.
But I still expect better than an annualized 10% return, and I'm happy with that.

jtrout you are my hero as you found a niche and are capitalizing on it for a long time and going forward. there are so many easy(tough) ways to make money in this world its hard to believe more people wont put the marginal effort into learning something that works for them ans pursuing it.
as i said before your vast knowledge you gained can easily be put to buying properties and fixing them up cheaply and flipping them or renting. your income after a few years will skyrocket.
i urge readers to remember what you are doing as a model that they can also advance in life.
good luck and keep us posted every once in awhile.

Como puedo contactarte? email?

Who pays for other people's foreclosures? I had one in the past and I never paid 1 cent back!!!