Buy Tax Lien Before Auction

Whether you are exploring tax liens as a potential new investment, you have been buying for years, or you are a portfolio manager for an institutional investor, you probably focus most of your tax lien buying efforts on the annual auctions in February. The standard drill is to obtain the list of delinquent parcels that is published in January, and start researching the properties to decide what to bid on when the auction comes. Buying Aover the counter@ after auction is the other alternative, but the selection is usually limited, and not as attractive. In this article, I describe pros and cons of different buying approaches, including suggestions for buyers and sellers in a secondary market for tax liens.

The primary ways to buy tax liens are at auction, or later, over the counter at the treasurer=s office. In both cases one is buying the lien from the state of Arizona. ASecondary market@ simply means buying tax liens from other investors B liens already purchased from the primary market.

The benefit of buying liens at auction is that this is where liens on the best properties (the best security for the liens) is available. The downsides of participating in the auction are that interest rates are likely to be bid down on the desirable properties, there is no guaranty of having the winning bid, and research efforts in advance of the auction are likely to be wasted because the prepared bidders are likely to be chasing the same investments.

Buying over the counter, albeit from a smaller universe of opportunity, allows purchases at the highest interest rate, and perhaps a better ratio of research effort to actual purchases made. But what do you do if you are not satisfied with liens available over the counter? Just wait until the next auction? Not necessarily.