Tax lien auctions have gotten more and more competitive in recent years. Some factors that have led to this trend include: more awareness among small investors because of new courses on the market, more Wall Street money entering the market and the new trend of internet tax sales.

If you have been to the tax lien sale lately you may have noticed something interesting. The big dog investors are bidding the properties down to next to nothing. In Florida, it's very common to see properties bid down to one quarter of one percent. Has your banker gone insane? Or do they know something that you don't?

It's probably a little of both, or they are probably playing the sub tax game. What's the sub tax game? It's very simple, really. In many states, the regulations allow tax lien investors to pay the taxes for the following years, also called subsequent taxes. In other states, the investor is actually even required to pay the sub taxes. Even more interesting, many states also have minimum penalty statues on the books that make investing there very attractive.

For example, in Florida, it is very common for the tax liens to be bid down all the way to one quarter of one percent. However, Florida also has a 5% penalty clause and an 18% normal interest rate. So, in Florida, the investor will often buy the lien at the quarter percent bid. If the lien redeems in three months, then he has made a 20% return. Worst case, the lien does not get paid for the whole year and the investor still makes 5%, which is a lot better than bank cd's.

Then, the investor has the sub tax rule to make up the difference. He simply pays the following year's taxes and is at the full 18% for the sub lien without any competition. Not only that, he is secured by high quality real estate. The two liens together will average well over 10%. So, the investor either gets a nice high rate of return, or he gets a nice Florida house.

Of course, that's assuming that a hurricane doesn't blow the house down. Heck, he is even covered there, because the tax lien investor gets first dibs on the insurance money, ahead of the homeowner and even the mortgage company. What a deal!

So, as you can see, subsequent taxes are an area of tax lien investing where you need to know the rules and learn to play the game. If you do it properly, then you can make some huge profits!

Carlos Scarpero is an experienced real estate investor who specializes in tax liens and deeds. Visit his tax lien and deed blog at http://www.scarpero.com/real_estate.

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