Winning Bidding Strategies: From The Tax Lien Lady
I recently went to a tax sale in New Jersey. It was a very small tax sale in a small rural district. There were only 7 properties in the tax sale and I was able to get 2 links at 10 and 12 percent. That’s not bad at all in New Jersey’s current competitive sales tax environment. Usually in a tax sale like this, I come out empty-handed because I’m not willing to pay a premium for small tax bonds.
Most of the links in this sale (all but one) were under $ 600. In some states, local governments sell utility links at the tax sale along with the taxes. Anything paid to the local municipality can be sold as a tax bond in these tax sales. Most of these ties were due to bad debts for water or sewerage. Only one link included taxes along with overdue sewer amounts and was just over $ 1700. All the others were for amounts of water or sewer or both.
The trend in recent years in New Jersey has been to bid premiums on these small utility links. Investors are willing to pay a premium for these links to pay for subsequent taxes. But on small utility links, you usually cannot pay the post tax payments, but only the post sewer or water amounts that are much smaller than the tax amounts. Note that in New Jersey, the interest on the link is first bid down to 0% before the premium is bid. Although you get your premium back if the lien is redeemed in 5 years, you do not receive interest on the amount of premium offered or on the amount of the lien. You get a small penalty on the amount of the lien and the statutory interest rate (18% once the taxpayer is $ 1,500 in arrears and 8% on anything before that).
What some tax lien funds have been willing to pay to get these little utility links has gotten a little out of hand. In the last year, I have seen them pay a premium of up to $ 1500 to get a small link of $ 200 or $ 300. What it really means is that they are getting such a small combined return on their investment that it is not really worth it. absolute; especially for the individual investor.
So how could I buy 2 small links at decent interest rates in the last tax sale I attended? I first went to a small sale that had only 15 links on the original tax sale list and only 7 properties were left on the list on the day of the sale. Second, there were no really great links in this sale; the biggest was under $ 2000. Big links bring out all the competition.
Third, you need to know when to stop bidding. In fact, I was a bit lucky in this sale as there was only one other bidder representing a tax lien mutual fund company. I bid on all but one of the links, but did not bid too low. If you don’t get greedy and insist on bidding every link to your bottom line, the other bidders may not bid every link until your bottom line.
The fourth thing is that I was happy to receive the crumbs from this sale. What I mean is that the 2 properties I got links to were the worst properties for sale. One was owned by a bank and it was falling apart. It hadn’t been seen in years. You can see a picture on the cover of this issue. You can’t see it in the picture, but it also had trash piled up in the driveway and backyard and a crumbling shed in the back. The other house was empty and about to be foreclosed by the bank. It was also a very small house with no garage, in need of a bit of TLC and a lot of updating.
If I had decided not to bid on these properties due to their status, I would have missed a couple of good links and the only links I could have gotten. You have to be willing to accept what the great ones don’t want or are willing to let go of. These properties may be vacant and in disrepair, but they are still good links. The bank is going to redeem them at some point, but probably not until they sell them, which could take a long, long time. That will give me time to pay the subsequent utility payments (remember these were small utility links, add to my investment and generate more interest!