Introduction to Arizona Tax Lien Investing
The world of Arizona tax lien investing is full of promise and complexity. While Arizona tax lien sales are a popular choice, independent investors can struggle to make a substantial profit due to interest rates that can bottom out at zero and a three-year-long redemption period.
So, if you're ready to learn the ropes of Arizona's tax lien market, Tax Sale Resources has your back. Whether you need to shape your investment model around a section of the state's real estate market or develop tactics for tackling the next auction, we can support your next step as a successful Arizona tax lien investor.
How Do Tax Liens Work in Arizona
While Arizona is a popular tax lien state, investors can struggle to achieve a profitable rate of return.
For instance, the state doesn’t have a fast five rule like Florida. This difference means that if the lien gets bid down to 0%, the winner doesn’t receive a default interest rate of 5%.
Instead, they receive what the property owner owes with no additional interest payments.
As a result, investors can land themselves in sticky situations where they acquire a property that provides no return.
So, buyer beware – otherwise, you can get into a hole quickly if you purchase liens on assets that don’t accrue interest or penalties from the owner.
This rule goes for desirable assets as well, so bidding on a single-family home doesn’t guarantee profitability, even if the home is in excellent condition or the owner pays the overdue taxes successfully.
How to Buy Tax Liens in Arizona
Here are the guidelines for buying tax liens in Arizona to help you avoid pitfalls and maximize profit:
General Tax Sale Process
Most of Arizona’s municipalities hold online auctions (you can find which are still live and in person in our Research platform). Whether you attend physically or digitally, the process is to research upcoming auctions and the properties available, register for the auctions you’re interested in, bid on the properties you want, and purchase the liens you win.
Things to Look Out For
Winning bids at an auction is exhilarating.
However, if you plan to own the property instead of collecting interest from the lien, the redemption period afterward can be underwhelming.
Arizona has a three-year redemption period, and you can’t file for the tax deed for the property until it ends. This rule applies even if the previous owner wants to give up the property and no other party claims an interest in the property.
After acquiring the tax deed, you’ll initiate the quiet title process. Therefore, profiting from a purchased lien can take several years from the time you invested.
Remember, operating a profitable venture with Arizona tax liens means identifying a niche within the market and creating a specialized model. For example, you can focus on the few live auctions in the state to mitigate competition and increase your chances of getting a lien with a high interest rate.
Likewise, while investors gravitate to single-family homes, vacant land and industrial properties, present unique opportunities for healthy returns. To learn more about identifying the highest yielding asset classes check out out Market Analysis Report.
Over the Counter Tax Liens Arizona
Also, there are over the counter tax liens in Arizona to process for leftover liens.
Specifically, if liens don’t sell at the primary auction, they go to an over the counter tax lien list that the county holds.
Investors can then purchase these over the counter tax liens from the county on a first-come-first-serve basis, meaning there’s no bidding.
Tax liens end up with an over the counter status because bidders ignored them for better opportunities.
For example, years of neglect and damage can land a home on the Arizona over the counter tax lien list. Likewise, multiple interested parties and past owners fighting over a property can create too much trouble for a reliable investment.
As a result, thorough research is still vital for these liens.
On the bright side, some times the investor fails to follow through on their winning bid. So, when the bidder doesn’t make their purchase, the lien inadvertently falls into the over the counter tax liens list.
Therefore, you can find a diamond or two in the rough after the primary auction is over. Doing so requires the correct timing, which means finding out when your county populates its over the counter list after the most recent auction.
So, while over the counter liens might not be the backbone of your investing strategy, it can supplement your portfolio with an extra property here and there.
Pros of Buying Tax Liens in Arizona
One unique advantage to buying tax liens in Arizona is when the state’s tax sales occur.
Although most of the country’s tax sales happen in the middle or end of the year, Arizona conducts its tax sales in February.
So, investors who need to keep active during that time have a great opportunity to buy Arizona tax lien certificates to maintain the flow of tax sale properties into their portfolio.
Plus, the couple of in-person auctions across the state is a perfect excuse to travel south during the winter!
On the other hand, if online auctions suit you, most of Arizona’s auctions now take place digitally.
So, while online accessibility increases the competition, it allows you to bid on a range of liens that fit your model, such as vacant land with mineral rights. While these parcels may not provide a hefty interest rate, they are suitable for specialized investors.
Cons of Buying Tax Liens in Arizona
Tax liens in Arizona also present certain risks.
As discussed earlier, online auctions and state statutes increase the possibility of bidding down to a zero or near-zero rate of return, minimizing investment profitability.
Additionally, the three-year redemption period requires investors to have a longer timeframe to become the owner of any given property.
This dynamic can be particularly challenging to independent investors competing against institutional investors who don’t mind bidding down to a fraction of a percent and can afford to tie up equity for several years before turning a profit.
In addition, current state code impinges upon potentially profitable liens that redeem before the end of the first month. In other words, interest accrues after the month you bought it.
In this situation, you get your bid back, but you'll be out the fees you paid to acquire the property.
Similarly, the resources spent on research and due diligence are down the drain.
Insights for Investors Looking into Arizona Tax Lien Sales
Investing in Arizona tax liens means taking a well-informed, sophisticated approach to the market.
Investing Models That Have a High Success Rate
Regardless of the state, the best tax lien investment models target specific property types and circumstances.
It follows that successful investing in Arizona tax liens means defining your niche and pursuing the liens that fall within your criteria. Therefore, careful research is essential.
For instance, in 2022, tax lien sale in Maricopa County resulted in over 9,000 parcels sold.
About two-thirds of these parcels were residential, representing a high-competition area of the market with low returns.
On the other hand, just 66 of these parcels were industrial, while 2,220 were vacant. Some counties return twelve plus percent on the average winning bid for these types.
So, investors who take the road less traveled and build a strategy around unique properties can bypass large portions of the competition.
Arizona Tax Sale Results Review
Each county in Arizona offers a distinctive slice of real estate.
For instance, Apache and Yavapai county tax sales contained more vacant than residential parcels in 2022, indicating an opportunity for investors operating outside the residential type.
In addition, Tax Sale Resources’ market analysis shows that in Arizona there were tens of thousands of untapped opportunities for investors to explore. You can use the Tax Sale Resources market analysis tool to dive into the details for each county and see which parcels fit your investment model.
Arizona Tax Lien Sale Competition
Remember, finding your niche is the best way to create space between yourself and the wider competition.
In addition, because single-family homes are attractive to institutional investors, it’s best to steer clear of this parcel type, as intensive bidding can reduce the interest rate to zero.
It’s also wise for independent investors to attend the sparse live auctions in Arizona because they’re small potatoes for institutional investors.
On the other hand, attending in person can help you access the hidden gems that other investors don’t pursue.
Arizona Tax Lien Frequently Asked Questions
These insights into frequently asked questions will round out your understanding of Arizona tax lien sales.
How do I Find Arizona Tax Liens?
You can find Arizona tax liens at the auctions of the sixteen counties across the state. Parcel listings are available by county, and the low number of counties makes research more manageable than Texas’ 254 counties. However, county data isn’t always thorough or updated. On the other hand, Tax Sale Resources provides an in-depth analysis of parcels at the next auction. In addition, our research tools allow you to filter results according to your investment model, which is a lifesaver for sifting through tens of thousands of tax liens.
What Months Are Tax Liens Sold in Arizona?
All counties in Arizona sell tax liens in February, and sales occur once per year. Therefore, preparation in January is necessary to tackle the tax sales in an organized, focused manner.
What Rate Does Arizona Pay on Their Tax Liens?
Arizona tax liens start at 16%, meaning that surplus or over-the-counter liens always come to you at that rate. However, investors try to outbid each other at auctions by taking a lower interest rate. As a result, the tax lien rate can sink to 0% when the competition is fierce.
When do You Foreclose on Tax Liens in Arizona?
You foreclose on tax liens in Arizona toward the end of the redemption period. Typically, you start preparing for foreclosure when you’re approaching the last months of the redemption period. It’s crucial to consult with an attorney in the state to get the timing right.
What is the Arizona Tax Lien Redemption Period?
Arizona has a three-year redemption period. Therefore, the current property owner has three years to pay their delinquent property taxes before you can transfer ownership.
Conclusion
Tax lien investing in Arizona offers both potential and challenges.
The offbeat timing for auctions, the possibility of earning zero interest, and the three-year redemption period can obstruct profitable investing. However, you can overcome these issues by finding a unique market niche, attending live auctions, or pursuing over the counter tax liens.
Remember, thorough research is vital, and Tax Sale Resources can equip you to navigate Arizona's tax lien market and earn better returns.
