We will be going over the 5 ways on How to Purchase Tax Liens. We must first understand that with every state and every county here in the United States of America. Each state or even county has a different way on selling a Tax Lien Certificate.
1) Bid down the interest rate
Like it says, the person that is willing to take the lowest interest rate will win the Tax Lien Certificate. So your return on investment or ROI will truly depend on how low of a rate you are willing to take. Now with me I will not take anything less than 12% like I have mentioned on my previous video.
2) Bid up the premium
With this one, you will be paying a premium on top of the actual Tax Lien Certificate. The winner is the one who is willing to pay the most.
In some states, you can earn a return on the Tax Line Certificate and on the premium.
In other states you will only earn a return on the Tax Lien Certificate, but the premium does not get a return at all, it just gets returned.
But in other states you will loose the premium and that county gets to keep that premium.
3) Combination of both (bid down the interest & bid up the premium)
The combination goes something like this, first the interest rate is bid down to zero, then a premium on top of the original Tax Lien Certificate. So if you are the winning bidder, you will pay for the Tax Lien Certificate plus the premium that you agreed to pay. And in return you don’t get any return on your money and the premium that you paid does not get returned.
Example:
Say for example that the Tax Lien Certificate is $1,000 and you agreed to 0% interest & a premium of $100. If the homeowner redeems that the Tax Lien, the county will collect the $1,000 plus penalties and interest. But you will only get the original $1,000 and nothing else, while the county gets to keep your $100 and all the penalties and interest.
Now you must be wondering, why on earth would someone do this? The answer is professional investor that have deep pockets and are banking on getting the return on the subsequent Tax Lien, since they will have first rights to it. Also if the homeowner does not pay for the Tax Lien, then the investor gets to foreclose on the property. Which makes for a great return most of the time for these professional investors.
As far as I know this is only done in New Jersey, but then again I have not invested in every single state of every single county in the United States, so please don’t quote me on that. As a matter of fact, if you know of another state that does this, please let me know in the comments below. While at it don’t forget to smash that LIKE button and smash that SUBSCRIBE button as well.
4) Rotational bidding
There is no actual bidding, instead they just go down the room. I’ve seen two ways that rotational bidding is done the first way, which is a very long process. Each bidder is assigned a number then the Tax Lien is offered to the 1st person then the next until someone takes the Tax Lien Certificate. However, there are times when no one wants that specific lien, in which case they move on to the next Tax Lien until the county has gone through the entire list or until there are no more bidders. LIKE I was saying, very long process.
The 2nd way that I have seen it is by raffle or just going down the list of people in the room. The county clerk pulls your name from the list then you are asked which Tax Lien you would like to purchase. This can be very beneficial if you are first, but if you get picked last and your entire list has been picked by someone else then you go home empty handed.
5) Left Over Liens/Over the Counter
I know what you are thinking, “Left Overs” those are the properties that no one wants, these are the ones that were picked over and all the good ones are gone already. I hate to say this, You are most definitely correct. You should not look at the Over the Counter list, because they are all junky properties. Leave all of these to me and let me comb through all the junks, you should only have the cream of the crop. Well I hate to say this to you, but the Over the Counter list has so much great properties, that I don't attend auctions because there is no competition with Over the Counter Liens. I guess I just want to keep all the interest rate to myself and I don’t want to share with the county, they are already getting the taxes for the property.
Now that we have established the different ways on how to purchase Tax Liens. Which one are you going to choose? Please let me know by leaving a comment below. Also if you have any questions about tax liens, let me know as well, I will be more than happy to answer your questions.
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