Tuesday, May 23, 2006

How Profitable is Your Tax Lien Investing?

Do you know how profitable your tax lien investing is? In this article you’ll learn how to track your tax lien portfolio so that you know just how profitable you are at any time. Begin by entering all of your tax liens into a spreadsheet or software program. The best way to index them is by county/municipality, and tax ID (in New Jersey this would be block and lot). You’ll need a column or field for the certificate amount and a column or field to input the interest rate that you are getting on the certificate amount. You’ll also need to input any premium that was paid. You’ll need to have a formula to calculate the penalty amount and a formula to calculate the interest due. These formulas must also take into account how many days have lapsed since you purchased the tax lien certificate. You’ll also need to be able to track any subsequent taxes and the interest paid on them. And you will need a way to keep track of all of your expenses, both the expenses that are reimbursed upon redemption of the tax lien certificate and those that are not.

To calculate how profitable you are, take all the interest and penalties that are due both on the certificate amount and on any subsequent taxes paid. Add to this your original investment (the certificate amount) plus any subsequent taxes paid plus any expenses that are reimbursed upon redemption of the tax lien certificate. This is the total amount that you would be paid if your tax lien certificate redeemed. Subtract your total investment from this number. Your total investment is what you paid for your tax lien certificate plus any subsequent taxes that you paid plus any reimbursable expenses and non-reimbursable expenses related to your lien. This is your profit. Once you have your profit you can calculate the yield, or percent yield for each of your tax lien certificates. To do this, divide the profit by your total investment. If you want to convert this to an annual yield, you need to know how many days the lien was held for. Multiply the yield by 365 (the number of days in a year) and divide by the number of days that you held the certificate.

For instance if your profit was $360 on a tax lien that you held for 90 days and your total investment was $3600, your yield would be 10% and your annualized yield would be .10* 365 / 90 = .4055 or 40.5 %. You’ll need to do this for each tax lien in your portfolio. Then if you want to, you can get an average yield or annual yield for your entire portfolio.

Since every state is different the calculations for penalties and interest will differ for each state and you will need a different spreadsheet or software for each state that you invest in. If you invest in the state of New Jersey there is software available that has all of this built in. It’s called Tax Lien Manager, and it does much more that calculate the profitability of your tax lien portfolio. Tax Lien Manager will also calculate how much premium you can pay for tax liens and still be profitable and with Tax Lien Manager you can import detailed tax sale lists from LienSource. Tax Lien Manager also provides you with all contact data for New Jersey (tax collectors and county clerks) and pre-printed forms and letters to use in your tax lien investing.

Joanne Musa works with investors who want to reap the rewards of tax lien and tax deed investing. She is the author of the Tax Lien Lady’s E-books, Tax Lien Investing Secrets and Tax Lien Lady’s State Guide to Tax Lien and Tax Deed Investing. For more about tax lien investing, e-mail MoreTips@taxlienconsulting.com. To find out more about Tax Lien Manager, go to http://www.njtaxliensoftware.com/.

Monday, May 15, 2006

Streamline Your Tax Lien Investing Business

If you invest in tax lien certificates, there are certain things that you need to do in order to keep your investment profitable. By automating your business, you won’t miss any deadlines that might reduce your profit on your tax lien portfolio. You must keep track of when you bought your tax lien certificate, when subsequent tax payments are due, and when the redemption period ends. You will also need a system for recording liens with the county, sending out 30 day notices at the end of the redemption period, sending out requests to tax collectors for taxes due and tracking the profitability of your liens.

Let’s start from the beginning. Before you even purchase a tax lien certificate, you need to contact the tax collector and get a list of the sale properties. Some tax collectors will give you a list with all the information that you need to do your due diligence, but most will not. You need a system for finding the information that you need, doing due diligence on the properties and deciding on which properties you want to bid on and just how much you can pay and still make a decent profit.

I use a software program to help me with all of this and data from LienSource, a provider of tax sale lists for some of the east coast states, including the two most popular tax lien states, New Jersey and Florida. In my software program I have all of the contact information that I need including the phone numbers and addresses of all of the tax collectors in the state. Also with my subscription to LienSource, I get updates on what sale lists are available and I have a calendar of sales for the state so that I know what sales are coming up. If I buy a list from LienSource, I can import all the data directly into the software program. The software program has it’s own calendar that will show all the sales that I import as well as relevant dates for any of the liens I own, such as when quarterly taxes are due and when redemptions periods are over.

My software program allows me to print due diligence sheets listing the sale properties. I can take this with me to do due diligence on the properties. The program calculates how much premium, if any, I can pay for the properties on the list. It also allows me to print out a bid sheet listing all the properties, the way that they will be read out loud at the sale, with the maximum that I can pay for each property so that I know when to stop bidding. This way the emotion of the auction does not carry me away and I make sure that I am profitable. This is very important in New Jersey, where interest is frequently bid down to 0% and then premium is bid. You can easily lose any profit buy paying to much premium for a tax lien.

After I have purchased a tax lien certificate I use the software to track my lien. I keep track of all of my expenses, like recording the lien, and any subsequent tax payments made. I can also print out an affidavit with one click of my mouse to send to the tax collector whenever I make a payment. This is very important, because without that affidavit, you could lose any additional payments and the interest accrued on them. I can also use the software to track my current profit to date on any individual lien or my entire portfolio and it will let me know when I need to pay subsequent taxes and when a lien is ready to foreclose. I can even track the progress of the foreclosure.

I hope by now that you realize that investing in tax lien certificates is not just going to tax sales and buying tax liens. You need to do due diligence on the properties, keep up with the tax liens that you have by paying the subsequent taxes when they are due, and start foreclosure procedures when the redemption period is over. All these things take some time and effort on your part, but if you put in the time now, you will reap the benefits later. Find your own system for doing these tasks to help you streamline your tax lien investing business.
Joanne Musa works with investors who want to reap the rewards of tax lien and tax deed investing. She is the author of the Tax Lien Lady’s E-books, Tax Lien Investing Secrets and Tax Lien Lady’s State Guide to Tax Lien and Tax Deed Investing. For more information on Tax Lien Manager ™, the complete system for tax lien investing in New Jersey, go to http://www.njtaxliensoftware.com/.