This is the fourth article in a series of articles on the topic of tax liens and deeds. Rich Dad® Education’s Elite Training offers numerous classes that can help you achieve success in the area of real estate investing. Taught by Rich Dad Education Elite trainers, tax liens and deeds class offers students of all experience levels, an opportunity to dive into the investing world in a quick, efficient, and profitable manner. The fundamental goal of Rich Dad Education is to put students in a position to financially succeed, and tax liens and deeds can do just that.
In past articles in this series, the multiple favorable outcomes of tax liens and deeds have been discussed. In addition, how tax liens and deeds work has been discussed in addition to the difference between the two. Several times, the auction process has been mentioned, as that is the means that is often used to purchase tax liens and deeds and that will be the focus of this article.
The Auction Process
Like so many things with tax liens and deeds, there will be different processes depending on your location. Each county will have a registration process in place that will allow you to bid. For some counties you will be able to:
- Register on the same day as the auction or
- Be required to register several weeks before the auction or
- Anywhere in-between
It would behoove you to make sure that you know the rules of registration for the particular county you are interested in, in order to not miss out on potential great investments. When you register, ask if the county has any printed preregistration material that they can send you or if similar material can be found online. This material can help you become familiar with the rules and procedures of that particular county in addition to whether or not there are any fees or deposits involved in the process, what types of payments they accept at auction, and how much of the payment is due if you are in fact the winning bidder.
Auctions are increasingly becoming available online. For Rich Dad Education students that don’t reside within the state, there is the ability to purchase online, outside of your jurisdiction. If the auction is live or online, your registration materials will inform you of the location and time that the auction will be held.
At the Auction
Auction time lengths will vary depending on the amount of properties that are available so check with appropriate personnel before the auction to see if they can give you an estimate of how long your particular auction will last. The bidding process at the auction will vary depending on the location but here are some of the most common bidding systems:
1) Premium Bidding – A minimum bid is announced and an auction proceeds as you normally view an auction. The highest bid will be the winner. At live auctions you likely hold up a card and during online auctions a click of the mouse. Once bidding stops, the highest bid gets the deed. With premium bidding auctions, Rich Dad Education students should be aware that:
- Due diligence should be conducted on the property in question if any substantial bid is made.
- Make your calculation to what your maximum bid is before the auction and never go over that price. It is easy to get caught up in the excitement of the auction so be disciplined beforehand.
- If it is a tax lien sale, you may only receive interest on the minimum bid so be sure to make your calculations beforehand with this in mind.
2) Interest Rate Bid Down – This type of method only applies to tax lien auctions. In this type of bidding system, the highest interest rate is offered and that rate is bid down until no one is willing to go lower. Let’s assume that a Rich Dad Education student is attending an auction and the opening bid is 12%. The increments will go down usually by a ½ percent rate until it stops. Have your minimum acceptable rate of return known beforehand.
3) Rotation or Random Bidding – In these systems there is no auction process per se. Either sequentially or randomly, you or another investor will have a turn. On that turn a lien with an interest rate will be presented to you and you can either buy or pass.
There are other bidding systems less popular so, as always, check with the specific jurisdiction before the auction. Tax liens and deeds are just one way for Rich Dad Education students to get ahead. In upcoming Rich Dad Education series, many other strategies and principles will be taught. The Rich Dad Education series next week will take a look at some of the pros and cons of specific states.