My lien yield model says 12%. I don't believe it.

Question

The rental side is where my money sits, and I want a piece of the portfolio that doesn't care what house prices do. Certificates look like the closest thing to that.

Here's the model. $60k deployed across two counties in a 12% simple interest state. I assumed 85% redeem inside 14 months, 12% redeem later than that, 3% run all the way to a lien foreclosure. I priced subs at 25% of deployed capital per year and assumed they earn the same 12%. Output is a blended 11.4% and a couple of properties over five years, and a number that clean means I've modeled something wrong.

The things I already suspect: I don't know what happens to my capital between one auction and the next, and I don't know whether premium paid over the tax amount earns interest. Where else is the model flattering me?

Rena Expert · Accepted Answer

The gap between auctions is the biggest hole. Most counties hold one sale a year. Money that comes back to you in month five from a redemption has nowhere statutory to go until the next sale, so a 12% statutory rate on capital that's actually deployed seven months out of twelve is a 7% portfolio return. Your model is measuring certificate yield and calling it portfolio yield. Rebuild it as dollars-deployed-days and the number will drop by a third or more.

Premium is the second one. In several states any amount you bid over the taxes and fees earns nothing, and in some it isn't returned at all on redemption. If you bid an average 8% premium into a 12% state, your realized rate on the whole outlay isn't 12% and the shorter the hold, the worse that arithmetic gets. Check the exact treatment of overbid in the specific statute before you assume it.

Subs earning the statutory rate is real in some states and it's the most useful feature of the strategy, since it lets you add capital at the stated rate without competing in an auction. That's also why your 25% sub reserve should be a hard reserve rather than a forecast. If you're fully deployed at auction and a sub deadline lands, missing it can put your position behind a later certificate holder, and in some states that ends your path to the property entirely.

The 3% foreclosure line should be modeled as a cost, not a windfall. Counsel, notice to every party with an interest, and a title cleanup action all come before you can do anything with it, and the structure you inherit is usually one nobody has paid taxes or insurance on for four years. Whether it's worth finishing depends on the parcel, and you won't know that from the certificate.

samantha_ruiz · Answer

The reinvestment gap is exactly where I hit my ceiling. What I did about it was over-the-counter certificates, the ones left unsold after the auction that the county will sell you any day of the year at the full statutory rate. Sounds like free money until you look at what's left. Landlocked strips, half a driveway, parcels with an assessment bigger than the market value. The rate is the maximum and the collateral is close to worthless, so it fixes cash drag and does nothing for the deed tail.

carlos_nunez · Answer

One I ran into while reading dockets: an owner filing Chapter 13 puts the tax arrears into the plan, and the plan can pay them out over years at a rate the court sets, which may be under your statutory rate. Your certificate isn't in danger but your timeline and your yield both go sideways and you're now waiting on a trustee. Worth pulling the bankruptcy docket on the parcels you like most, since it changes what a redemption date even means.

nataliehsu · Answer

Who does the redemption and sub-tax tracking for people holding 60 of these? Is that a job someone gets paid for or is everyone just doing it in a spreadsheet?

megan_doyle15 · Answer

Dumb question from the newest person here, sorry. What software do people actually pay for to do this, and does buying liens need any kind of license? I assumed it was like buying a house, agents and all that, but nobody in this thread has mentioned a realtor once.

Rena Guide · Answer

No agent involved, @rigging. You're buying a claim from a government office, so there's no listing, no commission, and nothing to negotiate.

The auction itself usually runs on the county's own vendor platform, names like RealAuction, GovEase and Bid4Assets show up a lot. Registering is normally free, but the county will want a W-9 and a deposit before you can bid, sometimes a flat few hundred dollars, sometimes a percentage of what you intend to spend. For research, county GIS and assessor sites are free and are where most of the work happens. Paid parcel data and lien research tools exist across a wide price range, roughly $50 a month at the low end up to several hundred for multi-county coverage, and some charge per county or per report. Plenty of people at small scale really are running a spreadsheet, which answers @plumb too.

Buying a certificate generally doesn't require a real estate license anywhere, though a few states have rules about out-of-state buyers or want a local agent for notices, so ask the collector's office directly. Insurance isn't a thing while you only hold a certificate, since you don't own the property. The moment a deed lands in your name you own a vacant building and need vacant property coverage, which is priced very differently from a normal homeowners policy. Foreclosing a lien is a court process and people hire an attorney for it.

One wording thing, since this thread has used it carefully and most of the internet doesn't. A tax deed sale means the county sold the property outright. People also say tax deed for the deed you eventually receive after foreclosing a lien. Different processes, same two words.

bmoreno23 · Answer

Vacant property coverage is the line I hadn't priced at all. The quotes I've seen discussed for empty single family houses were multiples of a normal policy, with a much bigger deductible and exclusions for water damage, which is precisely what an empty house with no roof does.

aliyah_b · Answer

Adding up the actual first-purchase cost for myself: registration and deposit, a day of driving parcels, county recording or certificate fee per position, and then reserve for subs. If I put $5k in and land six certificates averaging $700, my expected interest for a year is a few hundred dollars against maybe two full days of work. That's not a business, it's tuition. I think I'm fine with that, I just want to call it what it is.

joe_delgado5 · Answer

I won't bid a deed sale without walking the parcel myself. County photos can be years old and the assessor's square footage is whatever someone wrote down in 1998.

omar_haddad · Answer

@wren, on the 3% that goes to deed, the reason those parcels went four years without anyone paying $2,300 a year is almost always that the owner had already given up on the building. Scope creep on those isn't creep, it's discovery. Open roof means sheathing, joists, drywall, wiring and mold remediation, and every one of those is found after demo starts. If your model wants a number for the tail, use zero and be pleasantly surprised.

My lien yield model says 12%. I don't believe it.

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