A bid-down auction pushes the rate towards zero, and the 5 per cent minimum makes going lower look free. It is free on a homestead. On vacant land, the hurdle sits one step below the opening rate.
On Calder County’s redemption record, a certificate on a mortgaged homestead still earns the investor’s 8 per cent hurdle at a bid of 4.25 per cent. Commercial parcels hold it down to 4.50, other residential down to 4.75. Vacant buildable land needs 17.75 per cent, one bid step below the 18 per cent where the sale opens. And an investor who bid every class at or above its floor would still expect 7.99 per cent on the sixty certificates, because the floor is worked out for a sound parcel and two of the land lots are not.
Chapter 6 of the book asks how low to bid, and answers it class by class: search upwards from zero in the county’s 0.25-point steps and stop at the first bid whose expected IRR reaches the target. The answer depends on who redeems and when, not on the advertised rate, so it comes out very differently for a homestead with a lender behind it and for a lot of bare land. The figures below come from the redemption workbook in the companion files. None of them assumes anything the book does not.
Each figure is the expected IRR a year of one certificate at the class’s average face, across every way it can end: redeemed within 24 months, redeemed after the deed application, paid out at the deed sale, or taken by the holder and resold. It includes the $10 fee, the one-month payment lag, and the subsequent taxes the holder pays at months 12 and 24, which earn 18 per cent simple whatever the bid.
| Class | 0.25% | 3% | 5% | 9% | 13% | 18% |
|---|---|---|---|---|---|---|
| A · homestead with a mortgage | 7.66% | 7.73% | 8.35% | 10.42% | 12.90% | 16.23% |
| B · other residential | 7.33% | 7.47% | 8.15% | 10.15% | 12.47% | 15.55% |
| C · commercial | 7.36% | 7.53% | 8.23% | 10.21% | 12.48% | 15.48% |
| D · vacant buildable land | 1.55% | 1.73% | 2.36% | 3.99% | 5.80% | 8.17% |
Two things stand out. The first is how flat the top three rows are at the bottom of the auction. A homestead certificate won at 0.25 per cent expects 7.66; the same certificate at 3 per cent expects 7.73. The second is how far below them the land row sits. Land at 13 per cent expects less than a homestead at 0.25, and land at the full 18 per cent expects less than a homestead at 5.
The flat stretch is the 5 per cent minimum at work. An owner who redeems pays the greater of interest at the bid for the months elapsed and 5 per cent of the face. At a bid of 2.5 per cent the interest only overtakes the minimum at month 24, so for every redemption inside the county’s 24-month record any bid up to 2.5 per cent pays exactly the same. That is why 0.25 and 1.00 per cent give identical IRRs in every class. The exception is a bid of 0: Calder County pays no minimum on it, and the homestead certificate falls from 7.66 to 2.37 per cent.
The workbook sets the book’s answer for each class beside the bid one step lower, so that both sides of the line can be seen.
| Class | Lowest bid for 8% | IRR there | IRR one step lower | Lowest bid for the 4% bill |
|---|---|---|---|---|
| A · homestead | 4.25% | 8.07% | 7.98% | 0.25% |
| B · other residential | 4.75% | 8.05% | 7.95% | 0.25% |
| C · commercial | 4.50% | 8.03% | 7.93% | 0.25% |
| D · vacant land | 17.75% | 8.05% | 7.93% | 9.25% |
For the three built classes the floor for the hurdle is between 4.25 and 4.75 per cent, and the floor for the Treasury bill is the lowest positive bid. Any positive bid on a homestead beats the bill by more than three and a half points. What it cannot do below 4.25 is reach 8, and the gap is narrow: from 4.25 down to 0.25 the homestead gives up 0.41 of a point, 8.07 to 7.66, for sixteen steps of bidding.
Class D fails for reasons the bid can barely touch. On Calder County’s record only 80 per cent of land certificates redeem by month 24, against 98.5 per cent for homesteads. Of the 20 per cent left, 8 points redeem after the deed application, 6 are paid out at the deed sale and 6 end with the holder taking the parcel and recovering 70 per cent of the cash put into it, at month 36.
The deed application is what makes that expensive. It costs $1,800 per certificate, and on a $1,600 land certificate that is more than the face. On a $4,200 homestead it is less than half. The subsequent taxes scale with the face; the application does not. So the unredeemed tail of a land certificate ties up far more money in proportion to what was bid on, for longer, and a higher rate on the face only partly pays for it. Land at the full 18 per cent expects 8.17 per cent. The hurdle is cleared only in the first two steps of the auction, at 18.00 or 17.75, and a land lot that attracts any real bidding goes below it at once.
The book’s investor won sixty certificates for a sale-day outlay of $229,300 and expects 7.54 per cent on them, below its own hurdle. Set its average bids against the floors and the shortfall has a clear address.
| Line | Certificates | Average bid | Floor for 8% | IRR of one certificate |
|---|---|---|---|---|
| 1 · class A | 22 | 0.50% | 4.25% | 7.66% |
| 2 · class B | 18 | 7.00% | 4.75% | 9.09% |
| 3 · class C | 5 | 9.00% | 4.50% | 10.21% |
| 4 · class D | 13 | 13.00% | 17.75% | 5.80% |
| 5 · bought as D, in fact unusable | 2 | 13.00% | −63.08% | |
| The portfolio | 60 | 7.54% |
Two lines were bid below their floors: the homesteads, deep below, and the land, well below. Two lines were bid above. The lemons were bought as land and behave as class E, which no bid can rescue.
Suppose the investor had held line 1 at the homestead floor and lines 4 and 5 at the land floor, and won the same certificates. Changing those three inputs in the workbook gives the portfolio below.
| Bids | Portfolio IRR | Expected profit |
|---|---|---|
| As won (the book’s base case) | 7.54% | $20,010.38 |
| Homesteads at 4.25% | 7.68% | $20,385.42 |
| Land, lemons included, at 17.75% | 7.86% | $20,863.82 |
| Both at their floors | 7.99% | $21,238.86 |
| Both at their floors, the two lemons sound | 8.84% |
Every sleeve at or above its floor, and the portfolio still lands seven hundredths of a point short. The floors answer the question for a parcel that behaves like its class. Two lots in sixty that turn out to be unusable take the portfolio from 8.84 to 7.99 per cent, 0.85 of a point, which is more than moving the homesteads from 0.50 to 4.25 and the land from 13 to 17.75 put together. At the book’s own bids the lemons cost 0.82 of a point, 8.36 to 7.54.
The land sleeve earns its capital even less well than the table suggests. Take lines 4 and 5 out altogether, all fifteen land lots, and the investor pays $205,150 on sale day instead of $229,300, expects $19,884.82 of profit instead of $20,010.38, and earns 8.83 per cent. The $24,150 put into land adds $125.56 of expected profit over three years.
The floor is a stopping rule, not a target. At a bid-down auction the rate is set by the other bidders, and a floor tells you where to stop raising your hand, not what you will win at. Read that way, the workbook gives four practical rules for Calder County’s record:
Everything above is in Calder_Redemption_Portfolio.xlsx. Yellow cells with blue type are inputs.
To use it on your own sale, replace the class table on Inputs with your own tally of who redeemed and when. The blank tally in Blank_Templates.xlsx is built to collect it, and its bid sheet takes the floors class by class.
Every figure above is a live formula in the free companion files for The Tax Lien Investor, which also hold certificate C-0412 from face to yield, premium bidding with its break-even premiums, the sixty-certificate stress test and a Wexley County tax deed. Each worked workbook ends with a checks sheet setting the printed figure beside the computed one. No account and no email address.