You've checked out some properties, read up on the county's rules and protocols, and registered for the auction. Now the question is: What can you do to give yourself an edge over your competition? While the basic premise of tax lien investing isn't terribly complicated, there are secret strategies within the tax lien culture. Learn these secrets and you'll be well on your way to success.

There are six different methods of bidding at a tax lien sale, each with its own benefits and disadvantages. It's not enough to familiarize yourself with one or two of these methods. Every auction is different, attended by investors with different styles and levels of knowledge. You'll need to be able to confidentially navigate each of the following bidding methods in order to consistently acquire the properties you desire.

How Low Can You Go?

If the owners of a property for which you hold the lien do succeed in paying their back taxes, the government will reimburse your initial investment. The profits come in the form of interests and back penalties accrued, which you also receive. The auctioneer, starting at a statuary rate set by law, conducts interest rate bidding. Then, the rate climbs up slowly. The tax lien goes to the bidder willing to accept the lowest interest rate.

The bid down method is a useful tool that every investor should learn, but of course it does not work with every auction or against every competitor. The key is to know what you can afford. Bidders who represent institutional investors, like banks, can afford to take on much lower interest rates. When you go up against one of these bidders, your chances of victory diminish seriously. Educate yourself not only as to the types of properties you should pursue but also as to the types of bidders you'll face.

And the Winner is…

The next bidding system, premium bidding, is slightly more complicated. It's widely used so you need to understand it thoroughly. In premium bidding, the government adds a premium to the amount of the highest bid. You receive interest on this premium. The reason for the ensuing complication: the interest rate is not equal across the board. You might receive the same rate for both the lien itself and the premium, or you may get different rates for each. Or sometimes, you earn interest on only the lien or only the premium. You can even lose the premium entirely in some cases. So bid in states and counties with the best deals and leave lost premium auctions to those who have not undertaken the proper research.

That's So Random…

In the raffle system of tax lien auctioning, every bidder's ticket is dropped in a box, and then one is drawn randomly. The secret to getting picked-fill out the two W-9 forms with your social security number on one and the tax payer identification number of your company on the other. This doubles your chances of getting properties.

Pay attention to trends at an auction such as this. If the auctioneer calls a bidder and that bidder declines to buy the property, the auctioneer will call another name. if investors keep declining the property, heed this as a warning. These people may live in the area or know from sources of their own that serious problems plague the property. Remember: not every tax lien is a great deal.

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