Posted over 10 years ago

Tax Lien Online Auction checklist

Did you ever jump into a conversation that was already started by other people? That's how I feel now that I've joined BiggerPockets.

Now to make things worse, I'm starting a blog to discuss the one part of Real Estate investing that I do have unique experience with - Tax Lien investing using Online Auctions.

Ok, maybe that's not so bad. But the first article I write is not going to be a history of how I invested in tax liens and moved on to online tax lien auctions. No, no that would make too much sense.

But I don't have time to give my history. You see my favorite counties to invest in are in Arizona and those online auctions open in the next couple of weeks.

So I'm starting a brand new blog, on a forum where nobody knows me, with an article on preparing for an online auction. And I haven't explained why I like online auctions versus in-person outcry auctions.

Yeah, I'm that guy with this post. The guy at the party or conference that nobody knows who is about to join in a conversation among a group of people who all know each other - and spew out some tactics for a very specific niche in tax lien investing.

I'll cover more of my background in later posts. That would be the flashback montage like the writers did in the series "Lost". But we're about to enter the action of an online auction, so I'll start here with what I'm doing today and it will all unfold for you later.

In life I follow the Boy Scout motto - "Be prepared". For online auctions, I prepare in this way;

I have created a spreadsheet of the results of last year's auction with each lien that was purchased, who the winning bidder was, the winning interest rate, the amount of the lien, the Parcel ID number, and then the type of property and bid statistics for each lien.

The spreadsheet was prepared last year not long after the results were published. I have reviewed those results to prepare my bid strategy for this year. (that is the first tactic I use that makes people cock their head like a confused dog)

Second, I have updated my list of PIN numbers for areas I want to concentrate on. There are going to be several thousand liens available. I need to know which liens I want to concentrate on pursuing. Although I live in Illinois, I visit this area of Arizona every couple of years and know the areas I like.

You may be thinking "wait, does this guy look for specific parcels in the auction?" No, but Parcels numbers (PINs) are sequential in the same neighborhoods. I know the neighborhoods I like, I get the PINS for those areas in the summer, and then when the lien list comes out, I put it into a spreadsheet and filter to the PINs I'm most interested in.

For example, if an area I know has PINs that start with 321-45-XXX-XXX, then when I put the liens that are up for auction in a spreadsheet, I can filter the PIN column to show only those PINs that begin with 321-45.

So I guess that leads me to my third area of preparation. Having the software ready to go that I'll use for creating my spreadsheet of liens in the current auction. Sometimes the counties offer the liens they are auctioning in a spreadsheet format. If so, great, I download it and start filtering.

If the county only offers the spreadsheet in a PDF file format, then I need to have my handy dandy software that converts a PDF into a spreadsheet. The software cost me a few dollars, but it can convert several hundred pages of a PDF list into a spreadsheet in a matter of a few minutes.

Fourth on my checklist - have my outsource partner ready if I need to add data to the lien list. Some counties include a property type description on the lien list - things like "Owner Occupied Residential" or "Commercial Vacant Land". I want that in my spreadsheet so that I can sort and filter the available liens by type.

If the county does not offer that in the list, they do offer it on their website. So I have an outsourcer who will manually copy and paste that data into my spreadsheet. It may take a few days, but the auction is open for several weeks and I can take those first few days to get my data prepared for my analysis.

Fifth, I have my money in my bank account ready to to be transferred via ACH to the county for the deposit. I need to determine how much I will invest in total this year in this particular county and I want those funds ready to go a week before the auction opens.

Sixth - I sign into my account with my ID and password on the county auction website. Making sure it still is valid from last year.

That's enough of my checklist for now. Looks like I'm ready for this year's auction.

Now I have my friends who are investing in tax liens for the first time. They'll be buying one or two liens to see how this whole process works. I did a lunch session with them telling them how to open an account on the website, what they'll need, filling out a W-9, get money ready to ACH, etc.

It actually is nice to be explaining the process to brand new investors. It makes me double check my process and even pursue answers to questions I never even thought to ask myself.

Until my next post...

Comments (3)

  1. I have bought in Illinois (my home state) in the past. But like many things in Illinois, the state laws and county procedures are not investor friendly. The interest rate is great (starts at 18% and can go higher after time) but you have to be physically present to bid. You're bidding the interest rate lower and the low bid wins. Since most counties are running the sales at the same time of year, you often have to pick and choose only a few counties so you can attend in person. To give you an idea of "unfriendliness" take a look at Boone County. State law requires each investor to "register" 10 days before the auction. In Boone county you have to place a $250 deposit beforehand. Not a big deal, most counties require a deposit. But in Boone county if you don't show up and bid, they keep the deposit. Boone County had only 608 liens in last year's auction. The average rate on certificates sold was 4.97%. For comparison, the northern Arizona county I just participated in had over 2,500 liens sold at an average rate of 10.49%. 95% of all liens are paid off by the owner regardless of it being IL or AZ. Boone county will publish the list 10 days before the sale in the local paper. But if you want a list mailed to you, they require you to pay $70 for the list of liens, then only give you an update the day of the auction. AZ has free lists and it is updated on the website daily with liens that are paid before the auction. Boone county does not offer "over the counter" sales of certificates that were not sold in the auction. There were a total of only 20 buyers at last year's Boone county tax lien auction. That's good and bad. Less competition but very experienced. Winnebago county doesn't even have a webpage about their annual tax lien sale. You have to go to the county to get information and they usually don't want to talk to investors about the sale. They have their daily jobs to do. That said, if you are local to the county, will be able to attend the auction and can meet the registration, deposit, and same day payment for certificates you win - then it can be a good way to make some interest. Even though the Boone county average was 4.97%, that is just an average. You will be able to snag some higher rate certificates. You better know the area and the exact parcels very well. With 20 buyers of 600+ certificates, you're going against experienced investors. They'll bid the good certificates low and let the bad ones go for higher. But that is the case with any lien auction. It's just intimidating when you have to be physically in the same room and bid against a small number of investors. Good luck!

  2. Hello, Jerry. Your article is about AZ, but do you do any of these in Illinois? I've never done it before and am interested in trying this up by Rockford (Winnebago and Boone counties). Do you have any advice for my first attempt at this? (looks like the auctions are way off in October). Thanks.

  3. Hello I really would like to know more like how to avoid further encumbrances on the property..