Getting into Tax Lien Investing in Maryland

Tax Liens & Mortgage Notes
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Getting into Tax Lien Investing in Maryland

DL Coker
New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes

Hello BP Community,

This is my first ever post on the forums. I am just starting out on my real estate investing journey and I am currently educating myself as much as possible and trying to identify my niche areas of interest and strategies.

I am quite interested in tax lien investing, particularly as a means of obtaining better interest rates than elsewhere. However, in doing my research I have so many questions and I would be grateful for any thoughts and guidance.

  1. 1. I’m currently based in Montgomery County, Maryland. In my limited research done so far, it seems that this is quite a developed market for tax lien investing and it might be difficult to be successful at one’s first auction. Can anyone offer insight on this? If I had, say, $5k to work with, would I even have a chance of being able to place a successful bid? I’m just trying to gauge how significant the barriers to entry might be for someone who doesn’t have hundreds of thousands to invest right now.

  2. 2. Secondly, although tax lien investing may be more “hands-off” than other strategies, it’s my understanding that one should still get to know the market and areas they’re planning to invest in – so I figure I would start out (physically) close to home before considering out-of-state (or far away) tax sales in markets I know nothing about. While Montgomery County might be highly priced in MD, I wonder if Prince George’s and Howard Country might offer better chances for one starting out – any thoughts?
  3. 3. My last question relates to where I can learn more. I’ve read some material on the subject, particularly “The 16% Solution” by Joel Moskowitz and “Zero risk real estate” by Chip Cummings. In the fast moving world of the Internet, I realize some of the content might be a bit dated but I assume the basic principles still apply. Can anyone recommend any other decent sources or reading and research material in this area?

Thanks for reading through this far and I look forward to hearing your thoughts.

Best,

DL

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y

Tax lien investing is a volume business.  You might want to read @Ned Carey's post on the forums. He is the resident tax lien expert in Maryland.  But like I said, volume...hes bidding on thousands of leans a year.

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  • Beth H.
    Real Estate Investor · Catonsville, MD · Member since 2016 · 90 posts · 49 votes
    6y

    Hello! Welcome to BP.  I also live in Montgomery County. The 5k wont get you anything here.  It is very competitive and bulk bidders get priority over single lien buyers. Even in Baltimore City with online bidding it will be hard for you to get a lien on a decent property.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Tax lien investing is a volume business.  You might want to read @Ned Carey's post on the forums. He is the resident tax lien expert in Maryland.  But like I said, volume...hes bidding on thousands of leans a year.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    6y

    @DL Coker

    I dipped my toes in tax liens on md and as Russell Brazil mentioned Ned Carey is the resident expert and it is a numbers game. Make sure you know the rules and bidding in Maryland as it’s different than other states.

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  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @Chris Seveney @Russell Brazil

    Thank you both for your prompt replies. have seen Ned Carey's comments on a few tax lien threads so I will be sure to look into more of his posts on the topic.

    @Beth H. Thanks for the reply too! You confirmed my suspicions. Any idea if neighbouring counties (PG, Howard, etc) are as competitive in the tax lien space? I suspect they are. In any case, this is all part of the learning process for me. I'll keep doing research and see if I can build up enough capital to ever get involved in this or consider alternative real estate investing strategies.

    0Reply
  • WAYNE G.
    COCKEYSVILLE, MD · Member since 2009 · 65 posts · 28 votes
    6y

    You can buy tax liens with only $5k.  Ned did not start out buying thousands of liens.
    That amount is a bare minimum, and it limits what you can buy, because you need to pay attorney fees, and other possible costs.  ($100 entry fee to bid)  I wouldn't bid more than 1000 with only 5k behind it.

    Make sure you understand all the rules about the auction process.  (bid premium, time to file suit.)
    Look at the Baltimore city web site for tax sale.  Lots of info is available.  You will learn a lot about how to research a property, and that is very worthwhile.
    You will most likely be successful in the assignment sale, where your bid is limited to taxes owed, and they pick a person from those submitting bids.

    The problem is it is a lot to know, a lot of work to find a property you  would bid on, and not a lot of return for the time.  But you will learn a ton.

    1Reply
  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @WAYNE G. Thanks for your reply! It's encouraging to hear that it is in fact possible to start small. I threw $5k out there as a number to see if it would get any traction, and as you say that it's around the bare minimum, I suppose I'll work on building up a healthy sum to work with before fully committing any funds. 

    I did not know about assignment sales - that sounds interesting so I will research that a bit more. Do you know if that exists across all MD counties?

    The time spent getting to know markets and researching properties is something that seems to come up a lot when I ask about tax liens, but I figure that applies to almost any strategy so I'll try not to let that deter me. I figure that with a seemingly impending housing market correction and wider recession, it is reasonable to assume household and commercial budgets might be tighter, thus increasing the likelihood of property tax defaults (i.e. more availability/increased chances at forthcoming tax sales). Perhaps my thinking is a bit too simplistic but, in the meantime, I'm planning to educate myself as save as much as possible so that if and when more tax lien investing opportunities come up (say, in the next 12-18 months), I'll be in a better position to act and invest than I currently am. 

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  • WAYNE G.
    COCKEYSVILLE, MD · Member since 2009 · 65 posts · 28 votes
    6y

    You can buy tax liens with only $5k.  Ned did not start out buying thousands of liens.
    That amount is a bare minimum, and it limits what you can buy, because you need to pay attorney fees, and other possible costs.  ($100 entry fee to bid)  I wouldn't bid more than 1000 with only 5k behind it.

    Make sure you understand all the rules about the auction process.  (bid premium, time to file suit.)
    Look at the Baltimore city web site for tax sale.  Lots of info is available.  You will learn a lot about how to research a property, and that is very worthwhile.
    You will most likely be successful in the assignment sale, where your bid is limited to taxes owed, and they pick a person from those submitting bids.

    The problem is it is a lot to know, a lot of work to find a property you  would bid on, and not a lot of return for the time.  But you will learn a ton.

    0Reply
  • WAYNE G.
    COCKEYSVILLE, MD · Member since 2009 · 65 posts · 28 votes
    6y

    Assignment sales happen when properties are not sold in the first auction.  There are a lot in the city.  You can actually buy any that remain sold to the city at any time (over the counter).  There is often a very good reason no one wanted to buy these properties.  Baltimore county also had an assignment sale recently. (Pretty sure the rules are different than the city for that.)

    Look at some of the more rural counties that still have live auctions.  Those are free to attend.

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  • Beth H.
    Real Estate Investor · Catonsville, MD · Member since 2016 · 90 posts · 49 votes
    6y

    I have purchased tax liens in Baltimore City since 2001. I dont buy much there anymore and focus on other states.  Be very careful about buying liens there even those on assignment auctions.  If you end up foreclosing on them not only are you responsible for the attorneys fees but also for any liens and fines that were placed since the day you purchased the lien.  For example fines like tall grass, boarding up windows etc which triple after 90 days.  Since you are not the owner you are not notified and only see it when you pull lien sheets.  I had one with over 6k in liens at time of foreclosure.  I know Ned.  He is a good resource.    Good luck.  

    1Reply
  • Matt Schelberg
    Rental Property Investor · Baltimore, MD · Member since 2013 · 281 posts · 257 votes
    6y

    On education: I recommend reaching out to a Baltimore tax sale attorney. Some have slide decks available with really good info on the tax sale process for Maryland. They do this because they want your business for the legal work on the tax sale foreclosures.

    Budget: With $5,000 you could definitely buy some liens. The great thing about the City tax lien auctioneer is that their software automatically withdraws your bids once you reach your budget. So you could place lowball bids on dozens of liens, and hope to get lucky with a couple. And after your budget is exhausted your remaining bids would automatically be withdrawn.

    The tax lien jedi @Ned Carey once taught me that there are generally two types of tax lien investors:  people who want properties and people who want interest. It sounds like you want interest. So keep in mind that property owners can redeem at any time. It's very possible you could buy $5k in liens and not even make enough interest to make up for the $100 bidder registration fee.

    Finally: tax lien investing is NOT risk free. You are buying the right to foreclose on a property 1-2 years in the future, regardless of its condition. Last year I got a killer deal on a lien...looked great...then it burned up in a fire. 

    And earlier this month I had another owned property burn up in West Baltimore..see photo below. (@Russell Brazil is going to laugh because 3 years ago when I marketed it for sale, I wrote "some components still salvageable"...well, not anymore Russell.) So tax lien investing is anything but risk free! 

    3Reply
  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @Beth H. Thanks for replying and thanks for that advice about being aware of cumulative liens. Easy to see how those could quickly add up. Did you invest in other counties in MD before investing out of state? 

    @Matt Schelberg That is really useful information, especially about reaching out to tax sale attorneys. I'll PM you for details.
    I am indeed leaning towards the route of investing that will (hopefully) generate interest rather than properties - at least at this point in time. I suppose nothing is risk-free - that is really unlucky to have two properties taken out by fires!
    That situation never crossed my mind nor have I seen it in any books or material I've read through so far. What happens in that case- is there some sort of insurance that can cover some of your losses or is your principal redeemed without interest? 

    Most replies so far seem to have pointed me to Baltimore City - perhaps because it's the biggest and most developed market in the state. I wonder if a beginner might have better chances in a smaller county - Frederick, Anne Arundel, etc.? I'm going to keep researching and once Covid dies down, I'll see if it's possible to physically attend any tax sale auctions - if only to observe and meet other professionals in the field.

    0Reply
  • Account Closed
    Professional Auctioneer · Baltimore, MD · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Ned Carey is a friend and was a member of Investors United  years ago where classes on all types of techniques of Controlling real estate for a profit was presented.

    I realized years ago that it is hard to compete with the bulk buyers and the deep pocket investors.

    I did something different and created some ways to beat  DEEP POCKETS to the deal before they had an opportunity to use their money to control tax sale deals that shut little guys out of the competition, a way to poach and profit even after their bid was accepted and tax sale redemption process has started.

    The tax sale poaching systems has helped me make some nice profits. At 78 years old, I am not trying to sell anything only to say "That you need to be darn creative, get up early, start every day with an objective, be enthusiastic, follow-up leads and be ethical in all that you do in the tax sale business."  (OH! and make full disclosures)

    Owners in tax sales are under lots of pressure, it is almost "Do or Die" for many of them, that is why we as investors have to be sensitive to what's happening in their real estate and financial life. 

    Important to have empathy, for owners and their situation and apply creative solutions to their problems, but at the same time keeping in mind and also state it clearing to all involved that ...."it is my goal to make a reasonable profit as long as it can be done professionally and honestly with full disclosures."

    The Tax Sale Poaching system sometimes comes down to the last hours before a judge signs a deed over to the tax lien certificate holder.

    Some of the creative approaches could be:

    1. Option to buy the lien

    2. Bring the debt current

    3. Hybrid partner with owners or JV

    4. Offer proposal for assignment of the certificate

    5. Offer dramatic pro-active liquidation methods

    6. Apply legal procedures and appeals

    7. Counseling for equity.

    8. There are times when a seller's problem can be solved using some of these methods that does not result in a profit, but lots of good will for a distressed seller that will be long remembered.

    9. Helping others, according to the Laws of universal reciprocity is returned many times over.

    10. There are times when you have to give freely to obtain the rewards you are looking for. 

    11. Discount mortgages

    12. Offer financing

    Tax Sales are abundant almost in all 3200 counties in the US, when you are ready with the tools, forms, scripts and personal energy, profits WILL BE MADE. Be ready to beat DEEP POCKETS at the tax sale game, a game they are so good at.

    Even the little guy, just getting started can play for fun and profits.

    Good luck --- Charlie

    4Reply
  • Beth H.
    Real Estate Investor · Catonsville, MD · Member since 2016 · 90 posts · 49 votes
    6y

    @DL Coker No I did not buy in other MD counties before going out of state to invest.  The ones I would be
    interested in are in the metro areas but they are too competitive and favor bulk buyers.

    0Reply
  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    @Account Closed This is golden! Much for me learn but it's good to know that with diligence and proper research, even the little guy can make something in this competitive market. I like your point about empathy too...particularly relevant in the current context we're living in.

    My main takeaways are:
    1. Research, research, and research again 
    2. Tax lien investing in not risk free - understand the rules
    3. Look up for anything Ned Carey has to say about tax liens and deeds! :)

    Thanks to all for your input so far! I'm already ahead of where I was a week ago - no doubt I'll be back with more questions soon


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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @Russell Brazil @Account Closed Thanks for the mentions.

    @DL Coker Yes you can start with as little a $5k. As Wayne said, I started with $5k buying two leftover liens at face value. I was able to foreclose on both properties and made about $50k total. Absolutely beginners luck.

    You will not be able to compete in Montgomery or Howard counties. Prince Georges, Baltimore County and Baltimore city are the best of the close in counties. I suspect you can do OK in farther out counties that have smaller sales but I have never do so.

    As Matt S said talk to an attorney that does tax foreclosures. They will often give a quick free consult in hopes of getting a new client. I took and attorney to breakfast when I was starting. I also learned a lot from Charles Parrish. Otherwise here on BP a lot of tax sale posts come up. The best source is often county websites and the actual tax law statures.

    If a property is insured and rebuilt, you may get paid off. The insurance money won't come to you. It will get paid off simply because the owner doesn't want to lose his newly repaired property. However many properties are not insured and an owner may take insurance money and just not bother to repair the property.

    You can get insurance as the tax lien owner but that would be very expensive. We have had perhaps fires in perhaps .1% of our liens.  Matt Schellberg is really smart but I guess not so lucky. What is the saying "I'd rather be lucky than smart"

    As Beth H says, there are a lot of hidden costs like new taxes, water bills and fines, you have to pay if you foreclose. Vacant houses tend to attract fines like a magnet. 

    2Reply
  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    Hi @Ned Carey

    I'm glad this thread got your attention and I appreciate you taking the time to respond! I imagine an amount of $5k is the bare minimum to invest, so I'm building up additional funds while I continue to educate myself on the tax sale market in Maryland. I've taken @Matt Schelberg's advice and reached out to a Baltimore-based attorney who provided me with useful and detailed information. 
    Right now, I know some county tax sales have been postponed due to COVID, so there is still time to register and bid. That said, I don't yet feel quite comfortable diving in. Par of me says "go for it' - maybe I'll have the beginner's luck you had! The other part of me is extremely wary of all the hidden costs you and Beth H mention, and makes me err more on the side of caution. If I can be smart and lucky, that would be ideal!
    Given I'm starting out small, I will definitely focus on Prince Georges, Baltimore County and Baltimore city. Then I will perhaps look at smaller and farther out counties too.
    As for vacant houses, they seem to attract more problems than anything (at least from what I've read). I might steer clear for now.
    Thanks again and I'll be following your (past and present) discussions on all things tax lien-related!

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @DL Coker If you haven't registered for Prince Georges County it is too late. Registration ended last Friday.

    If you are interested, I suggest you try an auction. You will learn by doing. Even if you don't even get one lien, you will learn something by going through the process.

    1Reply
  • DL Coker
    OP
    New to Real Estate · Bethesda, MD · Member since 2020 · 14 posts · 5 votes
    6y

    UPDATE: So, I’m taking the plunge and am registered for a tax sale on July 20. The closer the tax sale, the more anxious and cold feet I get but now that it's just round the corner, I suppose I just want to confirm I'm still on the right track in terms of my tax lien investing approach. 

    @Ned Carey, I was indeed too late to register for the PG County sale but I am registered for the Baltimore City tax sale on July 20. As you say, at the very least it'll be a learning experience. I've made more contact with a tax sale attorney in an attempt to get more knowledgeable about the ins and outs.

    Right now, my roadblock is a case of analysis paralysis. Having obtained the list of tax sale properties (for which values will apparently be updated at least twice more before the sale), I am trying to determine the best way of sifting through the data. Is there a typical way one assesses properties - particular formulas or rules that you use?

    I've filtered out according to my budget and I'm trying to focus on occupied properties that are likely to get redeemed (my focus at this point is more to get interest than to acquire property). Beyond that, I'm trawling through the lists to run some basic comps on similar properties.  Admittedly, I need to educate myself a bit more on the Baltimore City market...

    So my questions now is this: Are there any general rules of thumb that I could follow to help me focus a bit more? For instance, I've read that:

    1. A tax lien should represent no more than 3-5% if the assessed value of a property. Does that sound broadly reasonable or would that be way off/totally dependent on one's budget and strategy?

    2. Newbies should essentially stay away from vacant lots because these can be loaded with risk to the uninitiated, but I have also read a lot about potential upside (vacant land on unimproved subdivision lots) - perhaps it's too much to tackle as a first timer?

    Logically, this leaves me focused on occupied single-family properties as they should have higher chances of redemption. Is my reasoning sound or are there aspects you think I might be missing altogether? 

    Any advice that Ned or anyone can offer going into the final stages before I participate in an actual auction would be welcome.

    Looking forward to any input and I’ll keep you all posted on my progress.

    @Ned Carey

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @DL Coker There are many strategies and they can all lead to varying ways to filter the list.

    I have never hear the 3-5% rule and I think it is totally arbitrary and whether it makes sense depends on your strategy.

    It is very hard to asses the value of a vacant lot. There are too many variables. What can the lot be used for? Is there are market for it? Is it Build-able? Is there are market for it? If you know all those answers then you still need to figure what it will cost to build whatever will go there? I would say not for newbies.

    When I started I just looked at properties in the neighborhood I was familiar with. Over time it has grow the the entire citiy but I know there are many of the more expensive neighborhoods where I can't compete so I don't even check them out. Good Luck.

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