Boulder County Tax Lien Sale is a Safe Place to Stick Some Dough
January 15th, 2009 Categories: Buyer's Corner, Focus on Boulder, Real Estate Tales
It has been a while since my last blog and I am trying to get over a severe case of writers block. With the holidays and my writers block, blogging just wasn’t working for me, so this one is a little out of date, but definitely something that needs to be discussed, so here we go. I hope it finds everyone well and enjoying the first part of 2009.
Last month I had the opportunity to go to the Boulder County Tax Lien Sale at the Boulder County Courthouse.
Boulder Courthouse
I have always wondered about buying tax liens and the process and how one might benefit from it. Every year I see the list in the Daily Camera, but I never have actually gotten off my butt to go and see what it was really all about. You always see those late night infomercials about the couple who made millions off of tax liens, or “BUY A HOUSE FOR ONLY $500″ and things like “I WAS A SCHOOL TEACHER MAKING $40,000 A YEAR, BUT MY HUSBAND AND I NOW OWN 15 PROPERTIES AND HAVE A NET WORTH OF $5,000,000, THANKS TO THIS BOOK ON PURCHASING TAX LIENS.” You see all this stuff and assume it is all just a big crock. Well, it mostly is… but there is opportunity to be found in this whole mess.
An investor friend of mine knows that I am interested in all aspects of real estate and investment, so he called me up and asked if I would join him at The Boulder County Tax Sale. Of course I would!! How could I say no to getting to the Boulder County Courthouse at 8am on a 9 degree Boulder morning to watch a bunch of people bid on delinquent taxes? My ideal morning. Truly!
We get inside and grab our donuts and coffee and head into the meeting hall, where about 30 people, mostly much older are sitting with their list of hundreds of properties ready to bid (there was a real live auctioneer running it) on peoples delinquent taxes. There is a formula to it all, which we can get to later. My friend had already wired $10,000 that he was willing spend to purchase however many liens as he could. This was his first time as well, so he didn’t want to break the bank on his first at-bat. I just sat as a spectator on this one.
This year the annual interest on the liens is 11%, meaning the person whose tax lien you are 
purchasing will be liable to you, the purchaser, 11% of the amount of the tax per year for three years or until they pay it off in full. The interest is accrues monthly, and if after three years they have not paid, you own the property. In the past 20 years in Boulder County, only twice has someone received ownership of anothers’ property through this process. Many think they are going to these sales to purchase almost free real estate. It doesn’t really work this way. People almost always pay, which brings me to yet another point.
You could also lose money. What you bid on is the premium. The amount over the interest owed that you are willing to pay to receive “ownership” of the lien. Therefore, if you win the bid, you are liable for the amount of the delinquent lien, plus the premium. If the lien gets paid back the next day, then you lose whatever premium you paid. Based on this and the 11% per year potential return, we both felt that about 3-3.5% was a safe premium to pay if purchasing multiple liens. Chances are, some will pay them back very quickly, and some will take some time.
There are also a few tricks to getting the liens you want and not paying a high premium. Don’t start bidding on the very first ones that come out. wait a while, until people start running out of money. Then, if they are re-juicing their funds or if people just aren’t bidding, that is your chance to strike. Then, you can offer the minimum and hopefully not have any competing bids. Know how much of a premium you are will to pay, before going into it, and stick to it. Don’t get excited by the “deal”. Don’t go at it trying to win them all. Know when to back out of a bid. And definitely, buy more at a lower cost, or if you have the cash, buy a lot of the higher priced liens. Not as many people bid on them and the premiums are always low. Make sure the property you are bidding on is actual property and not just mineral rights or things like that. I know several people who have obtained ownership of things like detached garages in
condominium complexes. These things can be sold or rented and profits can be made if the 3 years comes up and nobody has paid you. Don’t go into it thinking you are buying a house or property for a few thousand dollars. It is almost guaranteed it won’t happen, but if you want to take your extra cash out of the bank or out of the stock market, tax lien sales are a relatively safe place to invest. It is not going to make you rich overnight, but it will get you further than having it in the bank. I will be back next year with some of my own cash to invest. Not the most glamorous way to make money, but it is a safe-ish avenue for investment.
[...] Troia presents Boulder County Tax Lien Sale is a Safe Place to Stick Some Dough posted at Blog the Rockies, saying, “I have always wondered about buying tax liens and the [...]
I have always wondered about tax liens too. Your post has inspired me to look into how liens work in Honolulu.
Aloha,
Keahi
[...] blog entry on “Blog the Rockies” talks about tax liens in Boulder County, Colorado, where the period of redemption is three years. [...]
Great wordpress post, I will bookmark this post in my Clipmarks account. Have a awesome evening.