Tax Lien Certs - bid amount?

Question

What have you experienced guys been bidding lately to win these auctions?  In past years in Florida I've seen some redemptions at 12% and others at 18%, however the higher numbers were on vacant lots.

Given the extra competition with online bidding are double digit returns still viable in popular counties?

Steve K · Answer

That's fascinating that Polk County is generating half the return of the Arizona counties on average.  I'd think the ability to pick up a potential pennies on the dollar property would come with a premium as compared to the way Florida handles their tax lien certificates.

A 5% return isn't that attractive but then again it's double the current 10 year return of the S&P.

Jerry K. · Answer

Steve K - you hit my sweet spot for investing in real estate - online tax lien certificate auctions.  I've spent most of my time for the last few years on Arizona online tax lien auctions, but have been building my auction results database for Florida counties.

Vacant lots usually get the highest rates in the auctions.  If you want to buy liens to eventually get the property - then vacant lots also are your best bet.

I don't have results for all counties, but I do have Polk County in Florida in front of me;

21,561 liens were sold in the 2011 auction. 
3,822 of those sold were won with an 18% interest rate. 
The Average lien face amount of the 18% liens was $211.92 
The Median lien face amount of the 18% liens was $95.43

The largest face value lien that was won with an 18% rate was $7,652.76.

There were 96 liens that had face values above $1,000 that were won with 18%.

That means 3,700 liens had face amounts below $1,000.

So you can see the best chances for getting 18% is to bid on lower face amount liens.

Interesting statistics - Average # of bids per certificate won at 18% was 8,200 bids, but the Median # of bids won at 18% was 2. So there were a few certificates that received an extraordinary amount of bids. Most had few bids.

I'm only focusing on bid analysis here - it's very important to also have done your due diligence on the certificates (bankruptcies, epa, condition of property, etc).

Just the few stats above tells me that I should bid on lower face value certificates if my goal is to get 18%. I should wait until near the auction closing date and look at certificates that have a low number of bids per certificate.

I also have the Parcel numbers in the sheet so I can see when a string of parcel numbers have high interest rates won. I can focus on those areas (Parcel numbers) in this year's auction. Make sure the area has value in the properties!

Jerry K. · Answer

Steve K - I think with your last answer you hit the reason why Florida is so low on average rates.  With the sheer number of certificates available, even in the less populated counties, the fact that Florida guarantees a rate of 5% for the first several months, the banks and funds are willing to bid the certificates well below 5% to win the certificates.

There is plenty of inventory across each county, you can bid down to 0.25% to win the certificate, and yet you get 5% for the first several months.  That is a great short-term safe return for an institution in this current environment.

The big boys will bid down the rates in Florida.  You can still bid and get good rates, you just have to find where the big boys don't play, and then do your due diligence to get the decent properties in those areas.

Looking at last year's results filtering on what earned 15% - 18% and then see if there's an area based on similar parcel numbers that the big guns have missed.  Then you concentrate on certificates in that same parcel number range this year.

Jerry K. · Answer

Steve K Actually the Arizona county I invested in had an average interest rate of 10.54% on the certificates that sold.  There were 2,494 certificates that sold in the February auction.

The Polk County Florida results I quoted above from the 2011 online auction had 21,561 certificates sold and the average winning interest rate was only 5.17%.

There were 111 people/entities that bought the 21,561 certificates in Polk County.  There were 280 people/entities that won certificates in the Arizona auction of 2,494 certificates.

It's interesting gathering these statistics so that I can concentrate on the highest yielding counties and certificates.

Steve K · Answer

Jerry - thanks for posting the videos.  Those are very helpful for someone who hasn't gotten into these before.  The interest rates are a bit lower than i'd expect to see, but perhaps this is due to the Arizona specific rules that you might end up with the property?

I'm just now back in town and have to get all of my recon done and bids entered by the 31st.  I think you're videos and info will certainly help with that.  This year i'll just put out a small amount of money to learn this on and focus on areas I know pretty well that allow some quick DD.

Appreciate all of your insight.

Jerry K. · Answer

I've been looking at the smaller counties, but this year I'll save the results from some of the larger Florida counties so I can invest in them next year.  It's not a matter of avoiding competition, it's more a matter of learning the areas first and also picking counties that have the tax certificate sales online.

To give a further idea about how I approach a bid strategy for online auctions, I have 2 videos I made of one of my accounts in an Arizona auctions.  The first video show how I created a bid strategy and the results for 2011.  I went for high interest rate certificates and in AZ the highest rate is 16%.  Every certificate I won I earned 16%.  Still have a couple of those since the owners still have not paid the taxes.  Here's the link to the video:

http://dl.dropbox.com/u/59325075/2011%20Example%20Bigger%20Pockets.mp4

The second video shows what I did in that same county in one of my accounts for this year 2012 this past February.  This year I wanted to see if my bid strategy results data would help me win highly competitive certificates.  I knew the interest rate I earned would be lower, but I wanted to see if I could beat the competition for certificates on really high end properties.  I won 2 of the 3 I bid on.  Take a look:

http://dl.dropbox.com/u/59325075/2012%20Results%20BP.mp4

This does not include the regular due diligence you should be doing to make sure the properties have value and have no bankruptcies, EPA issues, etc.

Steve K · Answer

Thanks Jerry, interesting stats on Polk County.  Are you buying these statewide in Florida or do you focus on smaller counties to avoid the competition?  Im planning on focusing on Orange, Seminole, and Lake as the smaller county.

I'm glad you posted this info as I had no idea you could pull up past results.  I'm fresh off of book knowledge ( 16% solution ) on these investments and now looking to gain real world experience.

Some of the tax certificate amounts are surprisingly low amounts.  A tax lien of $259.00 must be on a mobile home lot or something similar, right?

Jerry K. · Answer

Did a little more filtering on the Polk county results.  I filtered the 2011 results and found that 6,797 of the 21,561 liens were sold at 10% or higher.  That equates to 31.5% of the liens sold were 10% or higher.

The Average lien amount of the 10.00% or higher group was $397.41 and the Median lien amount was $259.68.

The Average lien amount of the remaining 9.75% or lower group was $1,501.78 and the Median lien amount was $894.52.

There were a handful of liens that had a large face amount and were won with high interest rates:
Rate              Lien Amount
17.75%	 $86,029.93 
12.00%	 $77,654.17 
17.00%	 $42,058.96 
10.75%	 $30,986.89 
10.75%	 $23,719.29 
17.75%	 $13,794.06 
14.75%	 $12,246.33

This is where due diligence comes in.  While it may be that some good underlying properties slip through the cracks, I found most high face liens that also get high interest rates, are won by people who did not execute due diligence and bid on certificates where the underlying property had issues like bankruptcies, EPA, or other.

Tax Lien Certs - bid amount?

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