The highest rate liens are properties that are...
As I begin to prepare for 2014 tax lien auctions, I always start with looking at past year’s results. There are a lot of players in the lien auctions so it pays to have a little strategy.
A question I get asked often is, “What type of property gets the highest rates?”
This is in relation to the tax lien/certificate auctions where you bid the interest rate down and the lowest bid wins the certificate. So naturally, people who invest for the interest rate return want to know how to get the highest rates.
I‘ve talked in the past on this blog that one way is to look at the results from the previous years and see if there is a pattern to a range of Parcel Numbers that get the highest rates on the certificate. This could mean it’s a bad area or it could just be overlooked by the other investors.
There is another way to help gauge what property type of lien to consider. It requires that you get a list of the results that shows the Property Type Description alongside each certificate that was purchased.
In auctions run by Grant Street, you can download several years of results and include the Property type description in the file. In RealAuctions.com auction websites, you generally have to take the Parcel Number column from the results and either look up and populate the Property Type yourself or pay someone to do so. You can hire someone on elance.com, or Freelancer.com or other outsourcing website to do this work at $2-$5 an hour or maybe a fixed price of $10.
Once you have the property type with the results, you can do a Pivot Table in Excel and with some sorting of columns, you can see what type of underlying properties get the highest returns.
Now any statistician will tell you that you need a sample size of more than one year to give you the best results, but you have to start somewhere, so just by looking at last year’s results will start you on the path for smarter bids.
One point to note, you’ll want to add “Property Description” to your list of available certificates in the next auction. I do this every year in auctions where I have an outsourcer add the descriptions the day the list comes out. Many properties are eliminated from the list as people pay their taxes at the last minute, but I can begin my analysis of what I want to bid on early in the process.
So here is a Pivot table list of the 2013 Palm Beach County results by Property type. The list is sorted by highest rate earned:
Notice several property types that are not very liquid are first. The top 9 types that had the 18% rates are generally not properties that will ever redeem and you can’t do a lot with the property since it is public or non-buildable for other reasons. Most investors would stay away from these types of properties with tax liens.
Starting from the 10th type on we see that “Vacant Townhouse” and “Vacant” land seem to get rates above 10% and have a good amount of liens available in the auction.
We see that while “Condominium” and “Single Family” have the most number of liens, they also are getting some of the lowest rates overall.
This is where I would start to look at my list of rates by parcel number to determine if there any areas in the county where Single Family or Condos are getting above those average rates AND are still good underlying properties.
A little analysis now, writing down notes on what you find, helps you get through the next year auction list much faster with a strategy in place to get higher rates on good underlying property liens.