My First Tax Lien Investment!!
Success!!
I purchased my first property tax lien in September 2009 (two months ago from this writing). I spent $4,500 at the auction in order to win the bid. The original tax bill was only $480 but the bidding wars got the price up to where it ended up at pretty quickly. I was nervous because there isn’t much to be said or taught in schools (even the business schools) on the subject. I first learned about tax lien investing by reading and listening to Robert Kiyosaki’s Rich Dad Poor Dad books and cd’s. I admit I was skeptical at first because of all the ridiculous scams and hype a lot of people are selling these days but I decided to go along with it. I will give you a run down of exactly what happened from when I won the tax lien to when I was repaid in full with %20 interest!! I will probably go into more detail on tax lien investing itself in another related blog post.
Last year, when I was educating myself on this great new opportunity of tax lien investing mainly through the Rich Dad books (I never attended one of their seminars but I have read several books and listened to about a dozen CD’s of the franchise) I decided to visit the local tax lien auction and just observe. I had the money to begin investing that day but I wasn’t yet comfortable with the idea of forking out a couple of thousand dollars in a auction style manner. I’m a cold, calculating, young, business man (or at least I like to think I am), and yelling out large sums of money while an auctioneer takes me for a ride doesn’t sound like something I would be interested in. It just doesn’t give me enough time to think and react ya know?
I didn’t place any bids that day but I definitely learned a lot! I got to meet a few locals that visit the tax lien auction every month and attempt to grow their wealth and real estate empire by a few more properties. I asked a lot of questions. Specifically, I asked a lot of Georgia specific questions because the information you learn in the books and online only teaches you so much. You must know exactly what the law says in your state. And so I learned.
I came back again in September ready to do business. I had saved up $10,000 in cash in my frivolous account at the bank for the express purpose of investing in this auction. I have seen some bids go up to $50,000 so I knew I couldn’t hope to get some of these property tax liens but I was willing to drop 10 Big Ones to try. I started researching a whole month out all the properties that were going to the tax lien through the local paper. I did my homework on each of them, tallying up the properties tax values and taxes owed, etc. There were about 50 properties in all.
On the day of the auction the majority of the properties had been paid up and were removed from the list to bid on. Shucks!! I noticed there were only about 15 people who bothered to show up for the auction that morning and I began to see a few familiar faces I saw from my last visit. I figured these guys to be the “high rollers” in the crowd. I was worried that I wouldn’t be able to win an auction due to these rich old clowns but that all subsided as soon as the bidding began. Some of these guys could care less about bidding at all. Most of them came with just a few properties in mind and you knew it when it was their property on the listing. They hooped and hollered out their bids without care or caution until the other bidders backed down. One listing went for $30,000 that morning. However, it was for a $125,000 (tax value) piece of land that spanned over 100 acres. I’m sure it must have been worth closer to $200,000.
I participated in placing bids on just a few of the auctions that the high rollers didn’t seem to care much about. However, I figured there was a reason why these fellas didn’t care much about them and so I backed off when they did and some other citizens kept the bidding going higher and higher. Finally, I noticed a property that was worth about $45,000 and the bidding started at $480 (what was originally owed in taxes). It was 6 acres of timber out in the boondocks of the county lines that I had never really ventured out towards but I remembered that the land was purchased just 2 years ago from the records on file for over $50,000. It had to be worth something right?!? I went for it. It came down to just me and one of the other “high rollers” (one who I had been making friends with before we got started) and eventually he backed off and let me win the auction. I was thrilled and then a little scared thinking to myself “What have I just got myself into?” And so I owed the county tax man $4,500 for the winning bid and make a trek to the bank for the cashier’s check and promptly returned.
Now the original owner of the property had exactly one year from that day to repay me the $4,500 plus 20% (900) for the penalty fine in the state of Georgia. The owner basically owed me $5,400 in order for the lien to be removed. If for some reason I did not receive the entire $5,400 by the end of one year I could legally foreclose on the property and keep the 6 acres for myself to resell at a much higher price than what I paid for them or keep the land for whatever use I seemed fit. It is the owner’s responsibility to seek out the tax lien holder (the county mails them a registered letter giving them your contact info in order to pay you back). I made sure it wasn’t my responsibility to go track down the original owner looking for my money. It’s not. And I’m by no means a detective.
After just two short months I received a phone call from the property owner who was very eager to remove the tax lien from her property. She sent me a partial payment of $3,500 in the mail last week (I thought it might bounce but it cleared!), and the rest of the payment will be made next month for the extra $1,900 owed. After I receive the second payment the tax lien will be removed and I cannot claim any right to the property. I view this situation as a win either way it would have turned out. I could have technically purchased a $45,000 piece of real estate for $4,500 – which is exactly 1/10th of the value, or in my case, make a cool 20% return on my investment in less than 90 days. I can’t wait for next months auction!
2 Responses “My First Tax Lien Investment!!”
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My sister had a similar experience..gr8 post.you seem to be an expert in these matters.A 5 * article.
Very interesting article. I have heard of it but never really understood it and honestly it still baffles me that an owner wouldn’t pay the original tax owed of $480 but all of the sudden can pay $5400 in less than 90 days. How is that possible? It doesn’t seem to make sense but a 20% return in 90 is hard to argue with.