Here is an article from my friend Dustin Hahn that I thought had some good information about tax lien investing, so I wanted to pass it along to you…
Your Penalties!
Penalties are great in the tax lien business because that means you get your MONEY FASTER. Yes, in all other areas of life Penalties are bad, but not in the Tax Lien and Deed Business.
In a penalty state you can get your full interest rate Speedy fast! A homeowner has up to one year to pay his property taxes if you buy the tax lien. However, home owners are often scared of loosing their house so there are times when they pay the tax lien and interest rate within 1 week.? This Means You Get Your Full Interest Rate In Days! This happens every day to my students all across the country and if you keep reading these news letters and following along it will happen to you too.
Some tax lien states apply either interest or penalty, while others give penalties on top of interest rates. In New Jersey as an example, you get the interest rate that you bid on the certificate plus a penalty and you get the maximum interest (without the penalty) on any subsequent tax payments that you make. But in Florida, you only get the penalty or the interest rate – not both.
A penalty is different from the interest rate as an interest rate is paid overtime and is commonly annualized for most states, Although for some states, such as New York and Illinois, It is calculated over a 6-month period. In Florida and New Jersey for example, if the maximum interest rate is 18%, then that means, the interest is 18% every year, not 18% straight on your investment. But in Illinois, the interest is also 18%, but that is for 6 months. So if the tax lien is held for the whole year, the investor gets 32% interest, not 18%. But if it is redeemed in just 1 month, the investor will only receive 3% on his investment.
In Texas, a redeemable deed state, the penalty is 25% if the property is redeemed. The nice thing about Texas is that if the property is redeemed after one day or day 180, you still get 25% interest. If you are constantly getting redeemed in Texas you can earn much more than 200% per year by reinvesting your profit.
The redemption period in Texas is 6 months for non-agricultural and non-homesteaded properties and the penalty is 25%. Homestead properties in Texas have a two year redemption period and the penalty is 25% for the first year and 50% for the second year.
Before you bid at a tax sale, always know if the state gives interest or penalty, or both.
Dustin Hahn is a highly requested real estate speaker and authority on tax lien investing in the United States. He started investing in tax liens and tax deeds from his native Canada at the age of 19. He was so successful that he quit his dangerous job working on an oil rig and is now a full time real estate and tax lien investor. You can get Dustin’s Tax Lien Investing Course at www.TaxLienLady.com/DustinHahn.
By charlene June 28, 2011 - 9:03 pm
wow! great article. i never understood nj’s laws but i get this now after reading your article, and the beauty is–i live in nyc. yaye!