Okay… here is something that most Tax Lien Investors Would love to know: the top-secret way investors bid the interest rate down to 0% pay a premium and still make a profit. The secret is four simple words: subsequent taxes and penalties. Property taxes in New Jersey are among the highest in the nation. Taxes are so high that the township / municipalities’ collect taxes four times a year rather than twice per year like the rest of the country. Traditionally only one quarter of the years taxes are sold via a tax lien certificate. The certificate holder, and only the certificate holder, has the right to pay the subsequent taxes for the other three quarters of the year (as soon as fourteen days after the sale). The subsequent taxes will be added to the lien at the full 18% interest rate. The certificate holder may also repeat the process the following year if the property owner has not redeemed. The investor also receives a penalty that varies from 2% to 6% based on the size of the lien on his or her entire investment, minus the premium amount paid on the original tax lien certificate.
Each state has nuances that can throw a fledgling tax lien investor off. Don’t wait for a forewarning that will likely not come; complete your due diligence by thoroughly researching every state you intend to invest in. Become familiar with not only the rules, but also the local bidding practices. This will help prevent thoughts on the topic of crystal balls, not lose your mind at an auction, and help you to gain the confidence and experience you need to bid and win.
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