Going blindly into tax lien auctions and expecting to obtain cheap properties is not something you can expect to happen. The fact is, 93-98% of all tax liens purchased at a tax lien auction will eventually pay off, leaving the investor with only interest and no property.
However, there is a 3-step approach to tax lien auctions that will easily increase the number of properties you obtain by 500% or more.
Step 1: Pre-Sale Intelligence and Marketing
If the tax lien auctions you’re pursuing have a large number of liens offered, make sure to get the list on a spreadsheet along with assessed value of each property. Eliminate those properties that have a very low assessed value – it’s unlikely you’ll be able to make much of a profit from these even if you can get them for free or nearly free.
This will significantly reduce your list size and make it more manageable.
Next, send a postcard to each owner remaining on the list, with a simple “We Buy Property” message. Most investors never think to send marketing to this group of owners, even though they’re some of the most motivated or indifferent owners out there.
When you get calls from this postcard, determine whether the owner is letting the property go, wants to sell, or is trying to keep the property. If the owner says they’re just letting the property go, offer a token payment for the deed and resell the property. Use the buyer’s purchase funds to redeem the taxes and get your profit.
If the owner wishes to sell the property, but at a more significant price, get the property under contract and flip the contract to a cash investor. You’ll find cash investors investing at the tax lien auctions by the way – get the registration lists the county requires from past sales to obtain their names.
The most important part of Step 1 is to save the returned mail you get from your postcard campaign. Make sure you mail the postcards with a proper return address and with a postage level that allows for returned mail (no third class mailers!)
Step 2: Buy the Right Liens at the Sale
In your hands right now are the sellers least likely to redeem their properties from the upcoming auction. You’ve mailed to postcard to the address on file with the county, and that’s the same address the county has been using to try to send the owner tax bills and notices about the tax delinquency. It’s also likely the address to which the tax lien buyer will have to send notices about the tax lien auction.
Since you have a postcard sent back “returned” in your hand, you know that the owner likely does not know about the tax delinquency and will not be able to receive any further correspondence about tax lien auctions involving the property. This dramatically increases the chances that the property will not redeem and that you’ll someday obtain a deed to it if you buy the lien at the upcoming auction.
In our experience redemptions rates for liens with bad mailing addresses are only about 50% likely to redeem.
Another quick check you can do is to run each owner’s name through the social security death index (just google it to find it). Properties still titled in a deceased owner’s name also have only about a 50% chance of redeeming from tax lien auctions in our experience, down from 93-98% overall.
If you don’t have a lot of capital, you can skip the tax lien auctions and go to step 3. But if you do have capital that you’d like to earn 10-20% interest on, and have a great chance of actually getting properties, do everything you can to buy the liens with deceased owners or bad mailing addresses.
Step 3: Buy Properties Sold at Previous Tax Liens Sales From the Owners
Go around to nearby counties and get the sales results from past tax lien auctions. Find out which liens actually sold, and cross off the liens that have paid off in the meantime. This will leave you with a list of active tax liens. When the deadline toredeem is within 1-2 months, aggressively contact the owners left on the list, using skiptracing methods like Intelius if necessary, and get an offer into their hands. Motivation should be high with most sellers to get something out of their property before it’s lost completely.
Using this 3-step method, you should be able to obtain many properties from tax lien auctions, either directly from the auction or indirectly by purchasing from the owner. This is only one of 12 ways to profit from tax deed and tax lien auctions creatively.