Saturday March 6, 2015
Bidding at any auction can be an exhilarating experience regardless of whether you are bidding on tax lien certificates, homes, automobiles, or even just bidding on ebay. So to help remove some of the emotion out of the bidding process, it is recommended that you consider the maximum and minimum percent of return that you are looking to receive before you arrive at the auction. If you're a competitive person or if you hate to lose, then you may need to find someone...ELSE to bid on our tax lien certificates for you. :)
So to calculate the maximum bid that you should use before arriving at the auction, the first thing that
needs to be done is to determine what your desired rate of return is. The next step is to find out what the
the interest rate is for the county that you are purchasing the tax lien from. For example, in the state of
Maryland, depending on the county you are in, the interest rate for the certificate is between 6% and 24%.
So if your desired rate of return is 10% (for example), then you know automatically that you must select a county
that is offering an interest rate of 10% or greater for the redemption of the tax certificates. If the county
is offering an interest rate of 10% then your maximum bid will equal the minimum bid amount. If the county
is offering an interest rate that is greater than your rate of return...for example 15%, then your maximum bid
should not be greater than the minimum bid amount + 5% of the minimim bid amount.
Example: If the minimum bid is $5000 for a certificate that has a return rate of 15%, then the maximum bid should be no more than $5000 (the minimum bid) + $250 (15% - 10% = 5% of the minimum bid) = $5250. This will give you a return of 10%.
Here's a helpful article that can be referenced for more information: