Increased Opportunities for Tax Lien Investors

By Charles Sells & Don Fullman, Tax Lien Servicing Agent

It continues to be another record setting year in foreclosures and default real estate judgments. Investors are left scrambling, trying to find the yields they earned in real estate before the virtual halt in the nation’s real estate market and overall economy. As foreclosure rates continue to climb at a record setting pace, what are you doing to find the best opportunity in the market today?

Fair Market Value?

Foreclosure investments are a good investment opportunity, so long as there is a solid and predictable market to support their expedient liquidation. Typically, foreclosures sell for 15 percent to 25 percent less the current fair market value. This can yield great returns in a strong market.

Supply and Demand Could Increase Tax Lien Opportunities

As foreclosures go up, property values go down and the market slows down. Simultaneously, the “opportunity” for foreclosure investments skyrockets, creating more competition at foreclosure sales.

Tax default property continues to present a great opportunity in today’s market. Tax liens have a set return the day you buy them and on which you can depend in any market.

Typically, tax liens will yield a return of between 15 percent to 30 percent each year, while investing less than 50 percent in the underlying property’s fair market value. Tax default property opportunity usually mirrors the foreclosure market. Therefore, if foreclosures are up 40 percent in 2008, you can expect tax default liens/opportunity to be up 40 percent as well.

With greater opportunity comes greater risk and competition. Although tax lien investment opportunity has been better in the past three years than the 10 years prior, the competition has increased faster than the volume of liens available.

Unknowing investors with weekend workshops and investment “manuals” in their pockets are coming to tax sales without the experience, understanding and know-how to safely invest. Tax default property continues to be one of the best opportunities for investors, but investors should continue to rely on the professionals.

Why Work with a Tax Lien Agent?

Tax lien agents and managers like Platinum Investment Properties - West (PIP-West) have the knowledge and experience which can keep a great investment from quickly turning bad. Laws, policy and procedure in certain states can quickly destroy a novice investor’s valuable portfolio. As with any investment, you should rely on the professionals with the experience and know-how to do it right. PIP-West has consistently placed, managed and earned their clients an average of 27 percent on their redeemed tax lien investments in both strong and weak markets.

There are nearly as many “tax lien agents” out there, as there are programs to teach you how to invest for yourself. When considering the agent right for you, you should know what your expectations are of your investment in tax liens and which agent will best accomplish those objectives on your behalf.

Questions to ask a tax lien service agent:

• How long have they been in business?
• What states do they invest in?
• Is your investment pooled, or placed individually?
• Is your investment placed in your name?
• Are your investment funds insured?
• What is the agent’s primary objective – Profits/return from redeemed liens, to foreclose on property, or both?
• Does the agent have minimum performance objectives for placing your investment funds?

 

Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.