Normally, when the biggest player in any field gets out of a particular investment they’ve favored for years, it signals trouble.  If the big boys are getting out, individual investors tend to follow suit.

Not a bad strategy, but you have to dig deeper with your due diligence to get to the reason why the biggest investor is headed for, or already on, the sidelines.  This is especially true in the area of tax investing products like tax lien certificates and tax deeds.

In case you don’t know, the biggest banks have historically invested in property tax instruments.  It’s a safe and secure investment sold by state, county and local governments.  They pay above average returns giving the banks higher margins based on the spread.*

*The spread refers to the difference between what the bank pays in interest and what it earns in interest from loans and investments.

Banks have been the biggest buyers of tax investments.  That competition actually drives the yield down.  Fewer buyers have a contradictory effect of driving yields up.

The reason why banks have moved to the sidelines is the bursting of the housing bubble.  Right now they have too many real estate holdings.  These days it’s the negative and profit draining problem of foreclosed property carried on their books as Real Estate Owned (REO).

The last thing the banks need is an investment portfolio that could possibly increase their holdings of real estate.  Real property is difficult enough to move, even tougher when the government just reported home sales in July, 2010 hit a historical low.

So, less competition for tax instruments equals higher yields for those who do invest.  The big boys have left the field for now, time to make some money.