Posted by John Merchant, JD on May 11, 2002 at 02:57:16:
In Reply to: posted by Ben (NJ) on February 26, 2001 at 00:36:28:
Although tax liens certainly can generate a very high rate of return, in my experience it's durn near impossible to keep one's money invested ALL the time.
Let's say you have bought some tax liens in TX, which pays the investor 125% if the liened property is redeemed any time in year 1, and 150% if redeemed anytime in year 2. When the redemption occurs you'd need to get the money reinvested immediately in order to continue that rate of return, and there are going to be periods of time when that's just not going to happen.
There was a period for me when I was able to buy several TX tax liens. Each and every one was paid off in first year, unfortunately, and although of course I did make 25% that year on my money, I was not able to get the money reinvested in yet other tax liens.
In TX 256 counties, each county tax assessor, as I recall, decides when to hold her tax sales, and they won't always have properties to auction.
Even if they have a dozen properties slated for auction next week, it's almost invariably true that by this coming Friday, the delinquent tax payer (or his 1st lienholder bank or loan company) is going to be in the tax collector's offices paying those taxes current.
So by auction day, there may be just one or two, maybe zero, properties still on the block; all of which makes the really serious tax lien investor very frustrated because she can never know if or when really good deals are actually going to be sold for taxes.
More than once I geared up, looked at all the properties scheduled for sale "next week", and then gone to the auction, only to find that all but one or two had already been paid current ! Maddening! Those dirty bums paid their taxes and left me and my money high and dry.
Another thing that's kind of hard to deal with in TX, is that for whatever reason, maybe privacy concerns, or something else, something keeps the counties from being able to be as high profile, on the internet, as say Iowa or Florida's tax auctions; so it's hard for an out-of-stater to really get much information on those coming-up-sales and to get ready to be there to bid on them.
More than once I've tried to get a particular TX county's tax sale info on the phone or on line, but have never really been able to do so efficiently.
So, to conclude, while a TX tax lien investor is going to get a great return on the money she actually has invested, she's going to find great stretches of time when it won't be invested at all, and that's kind of hard on the bottom line.