Arizona 2012 Tax Lien Auction Results

I had decided that I would concentrate on Florida tax liens for three reasons: the 18% maximum return, the fact that I could stay in my parents winter home if I needed to visit, and the fact that the laws in Florida seem to take some of the risk (and potential award) away form the tax lien investor. So why and I writing about Arizona? By law, Arizona tax lien auctions happen in February; Florida auctions happen in May. I was looking for the experience of going through an auction before the Florida auction season kicked off.

There seem to be two major sights covering most of the tax lien auctions for Arizona and Florida. I'll get into more details on them in a future blog post, but for now, here they are:

Grant Street Group

http://www.realauction.com/county-tax-lien/

It took me a little while to track then down. I first ran into this site which does give some good info, but is aimed as selling a product:

http://www.tax-lien-certificates.com/

From there, I started looking at official state county sites to make sure I was not being scammed. Some county sites are quite good, many are terrible. Most had a link to one of the first two links above, so I was convinced enough that they were legitimate. I do suggest you go to the site of the county you are interested in as some of them do have good information.

I decided in Arizona I would concentrate on Coconino County. I am no Arizona expert, but I have been there three times. With all the news of a real estate crash in Phoenix, I thought the Flagstaff area would be safer. As the dates for the Maricopa County (Phoenix) auction happened first, I figured I would just be a lurker for that one. After spending some time looking, though, the anticipation was too great. I put together a bankroll of $5,000.

I ended up placing five bids in the Maricopa County tax lien auction. The maximum rate in Arizona is 16%, so I placed my bids from 14% on a nice house in Phoenix down to 8% on a mansion in Sedona. I was shut out. Most properties went in the 5-7% range. Becoming a tax lien millionaire was going to take longer than I originally thought.

Coconino County was the next auction I participated in. I kicked my still untapped bankroll up to $6,000 and place 29 bids ranging form a high of 15% down to 6% on a real beautiful property. Again, I was shut out. This second strike caused me to really bear down. Although I started looking at Arizona as just a practice for Florida, I was now determined to actually win a bid in Arizona instead of just seeing how the auction process worked.

As a last ditch effort, and with less time to research, I jumped into the Mohave County auction. I only spent enough time to look through the first batch of properties, so I decided to cast a wide net. I bid on 43 properties in batch 1, and my bids were from 7% down to 5%. I won four bids (these bids were all ties, and I lost another five ties). Here is what I got:

FACE VALUE ASSESSED AT RATE

$1,672.97 $169,900.00 6%

$951.47 $150,200.00 5%

$1,254.61 $153,300.00 6%

$1,247.37 $150,400.00 6%

As you know from my first post, that first one was redeemed already for a small profit.

Currently finishing up the Florida season, so I will update on that in the next post.

What is a Tax Lien?

For many financial instruments, it is often better to answer the questing of why it exists instead of what it is. The what, after all, is just paperwork and record keeping. Below is my understanding of why tax liens exist. Most of my understanding comes form the Moskowitz book, wikipedia, and some other random Internet sites.

Counties and other municipalities create a budget for their spending for the next year. The size of the budget depends on how much money they expect to bring in through various taxes and fees. Which projects can be started, completed, and most importantly paid for depends almost entirely on how much they expect to raise. Property taxes are the most common ways counties bring money into their coffers, and the biggest consideration when determining a spending budget is how much money they will collect.

Municipalities usually rely on state laws to enforce the collection of taxes and provide for penalties to encourage tax payers to not be delinquent with their payments. These penalties include charging a fairly high interest rate on late payments, and they usually provide for the seizure of property if the taxes are not paid within a certain time frame. While these laws ensure most people will pay their taxes on time, not everyone can or is willing to do so. The municipalities can and do collect the late fees and eventually foreclose on the properties, but that does not solve their main problem. That problem is they have spent or promised payments in one calendar year, and they cannot wait the three or more years it could take to get the money through a foreclosure. Also, the municipalities are not in the real estate business. While the law in on their side, they do not necessarily want to invest in the resources to manage the whole process from start to finish. One possible solution to the issue is to get investors involved.
 

By selling tax liens to investors, the counties win by getting the money they need to pay their bills. This means the citizens of the county win as well. The investors win because they want the returns they get by investing their money. The property owners whose properties the liens are written against are no worse off they they were to begin with (well, unless they were counting on the inefficiencies of the municipalities to snag a couple of months delays in foreclosures), and they might actually catch a bit of a break if the municipalities pass on a lower interest rate that was bid down by investors. It is rare to have a situation where there are wins all the way around, but tax liens seem to fit that bill.

Tax liens are sold at auctions. The auction rules and dates are often dictated by state laws. The lowest bids from investors wins the lien with one random winner chosen in the event of tie bids. Any liens not sold at the auction can be purchased directly from the municipality at the highest interest rate allowed by law. In my very limited experience, I would warn you NOT to count on getting anything other than raw land at or near the full interest rate. I am guessing that Internet Auctions are what is really driving the winning bids down.

So, what do you do after you win and pay for your liens? No much. The municipalities eventually collect the money for the redeemed liens for you (principal and interest). If you have held the liens for the prerequisite length of time (as defined in the state's laws), you can request a foreclosure to redeem your money. This will take some action on your part, but if you choose your tax liens carefully, depending on the laws of the state the property is in, this is were you can really make some money.

Welcome

I'm excited: I just received my first check from investing in tax liens: $1,677.76. Of course, I purchased the lien for $1,662.97, so my profit is only $14.79, a return of 0.88%. The good news is that this return was in one month, so annualized, my return is about 10.67%. Not bad at all, but still short of what I thought was my conservative goal of 12% per year based on my naive expectations before I got into the game. I am happy that I did not lose my shirt on my first tax lien transaction as that was a concern I had. I still have a lot to learn about tax liens.

Welcome to my blog. In case you have not guessed yet, the subject of this blog will be investing in tax liens. I will be learning more about the world of tax lien investing through learning resources and through real world experience, and I will share that knowledge here. Instead of giving a disclaimer about not being a professional, I'll take it a step farther and admit to being an almost total novice in the field. Feel free to doubt my claims and laugh at my mistakes, but also feel free to educate and encourage me and any other readers I might pick up along the way.

I first heard about tax liens about twenty years ago, but I never followed up on the topic until earlier this year. In February of this year, I borrowed the old version (1994) of Joel Moskowitz book The 16% Solution from the library. It seemed like investing in tax liens was a no risk / nice reward endeavor. Of course that immediately made me suspicious. Some haphazard Google searches made me even more suspicious, but I decided to jump in anyway. My plan was to “specialize” in Florida tax liens for reasons I will discuss in a later post. I figured I would just browse the Arizona online auctions to get a feel of how things work. In March of 2012, I purchased four tax liens in an online auction for Mohave County, AZ. In April, one of those tax liens was redeemed for the paltry (or princely, depending on your perspective) figures listed above. I am now a tax lien investor.

In future posts, I plan to discuss my 2012 Arizona tax lien adventures and my future endeavors (Florida tax lien auctions happen in May). I will discuss lessons learned, research done, observations and plans. I also plan to learn more about the subject of tax liens and discuss the sources of information I find. I plan to track my failures and successes right here online as well as provide links to more information sources.

This is my first blog, so I will be learning that whole world as well. I do not plan to use much post space on blogging topics, just keep in mind that for a while I will have no set format/layout. I hope to get this site looking more professional soon. I am not sure how often I will be posting, but I plan to have a minimum of one post a month. I definitely want to invite comments, but I still need to find out how to manage that part of blogging. I do want to monetize this site (my goal is to earn one penny a month which I will add to my growing tax lien bankroll), but I hope to keep it not too obnoxious.

Hopefully we will both enjoy this ride and come out the other end a little wealthier.