I went to a tax lien sale in New Jersey this week and was able to get 2 small tax liens. The tax sales in New Jersey are not like the tax sales in the rest of the country. There are no county tax sales. Everything is done on the municipal level. Each municipality has their own tax sale. This is both good and bad for the investor. Good, because there are over 500 municipalities in NJ and each of them has a tax sale once a year. So you can find a tax sale somewhere in the the state almost any time of the year. Bad, because you have to attend a few tax sales in order to get your money invested.
Today I got 2 small liens that totaled a little less than $900. The good news is that I got them at 17% and 18%, but the bad news is that I wasn’t able to invest more than $900. So in order to get more of my money invested I have to go to a few more tax sales. And it’s quite possible that at some of the tax sales I go to I’ll come away empty handed. That’s because at some of these tax sales things just get bid down to zero and then premium is bid, even for small utility liens like the ones I got at this sale!
That’s why I like to go to out of the way, rural areas to invest and not the larger tax sales in the bigger cities, or to the more affluent areas. It’s true that in the bigger cities and towns there are more tax liens available but there’s also more competition, both from institutional investors and individuals. And in the more affluent areas, there’s usually not much available and plenty of competition. So what’s an investor to do?
I suggest that you find your “sweet spot” – for me that means finding the liens that everybody – institutional investors and individuals alike don’t all want. For instance I like to bid on properties that are not pretty houses. They might be distressed, or even vacant. I also like to bid on small utility liens, something that some of the bigger players don’t want. I also like to go to rural areas, these are nice areas, but farther away from cities and big towns, where the property values are lower, but still decent. The tax sale that I went to had 55 properties on the original list and only 23 properties in the sale. There were 6 bidders at the tax sale – 3 institutional buyers and 3 individuals including myself.
The institutions got 12 of the liens totalling close to $44,000 in the lien amounts and $34,800 in premium. Between the 3 of them they got a mix of utility liens, vacant land and some larger tax liens which they paid a lot of premium for. The 3 small investors combined got 8 utility liens on residential properties, mostly at 17 or 18% (those were the ones that the institutional guys didn’t go after) except for one small lien that a $300 premium was bid for. Our liens totalled $1716. So just like in Florida, the big guys have the upper hand. They have bigger, deeper pockets and don’t mind paying large premiums for liens: Something that doesn’t make sense for the small investor.
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