I have participated in a few auctions this season in Colorado. I had participated in the online auction for park county (late Oct) and Adams county (Today 11/3) in Colorado. I was also present for a physical auction in Gunnison county last week.
The interest rate in CO is 10% with premium bidding. I have noticed that the investors are bidding 8% or more premium to buy these liens. I do not understand how this will be beneficial for the investors. With premium bidding they will lose money if the property owner redeems their taxes within 1 year. The only positive side I see in this is that, if the property owner doesn’t redeem this year, then the next year lien can be purchased by investor at 10%. I have noticed that a lot of big corporations / trusts / LLC groups are grabbing these liens.
I am not sure if I am missing anything here. This doesn’t make sense. Can someone help me here?
I went back and even looked at previous year’s premiums and they are also 7-8% in CO. I went ahead and researched AZ lien sales for Jan 2014, and they were bid down from 18% to an average of 2.5%.
This is the key to tax certificates in Colorado. The person holding the oldest tax sale certificate has the rights to take the property title by quiet title action. I believe but don't hold me to this because I didn't have time to research that it is 3 years and then the property can be acquired.
So probable the odds are that in Colorado one in x or xx homes is lost to taxes, since taxes trump 1st TD’s, 2nd TD’s, Mechanics Liens, Equity line of credit and home improvement loans that investors have factored in that if they buy x or xx tax lien certificates they will receive one home so getting a return on the certificate is not important but getting the home is since the average home value in Colorado is xxx thousand dollars.
They figure investing in tax certificates is like buying lottery tickets, buy ten, twenty or thirty and win.
So would you rather get 10% on a $550 dollar tax lien certificate or get zero interest but get a $130k dollar home in 3 years. Yes maybe you have to buy 35 $450 dollar liens to win one, but even after investing $15k to $20k if you get a home eventually which is worth good money your original investment and great profits are covered.
It is likely that the property owner who has defaulted in property taxes will continue NOT paying nor redeem the tax certificate, and likely the buyer of the tax certificate will be the new property owner after redemption expires; therein is where they make huge gains.
Years ago, we could buy at 18% but it has become very popular as an investment and so with the competition driving returns down, it is not surprising that investors pay a premium and get no profit on the investment but treat their investment like an option on a house that will likely come to pass.
Buying a house for the cost of taxes can be a great investment. Don’t forget to consider any outstanding obligations or liens against the property if you want a clear title…do your homework!!
Also, don’t overlook what is going on with adverse possession on abandoned homes these days…another viable way to gain profits in real estate.