Where"s The Best Place For Online Tax Lien Investing?
Which Are the Best States For Online Tax Lien Investing? Most people want to know which states have the highest interest rates and that's where they want to invest.
But things are not always what they seem, especially to the inexperienced investor.
The states that have the highest statutory interest for tax liens also have the most competition.
A few counties in the state of Iowa for instance, had online tax sales for the first time in 2013.
Iowa has the highest interest rate of any of the states that have online tax lien sales - 24% per annum, so you'd think it would be a good place to go for online investing, but that might not be the case.
Most of the liens in the online tax sales were bid down to 1%.
That's not the interest rate.
Investors will get the statutory 24% interest on their lien - if the lien redeems.
What was bid down is the percent ownership of the property should the lien not redeem and the investor foreclose.
If you bid anything lower than 100% you don't get full ownership of the property should you have the chance to foreclose on it.
That may not be enough leverage to get the property owner to pay off the lien.
After all, even if you foreclose, you wouldn't be able to take possession of the property or do anything to it without the owner's permission - even if you had a 99% interest in the property! The next 2 states with the highest interest rate for online tax lien investing are New Jersey and Florida.
They both have a statutory rate of 18% per annum, but this rate is bid down at the tax sale.
Some of the Municipalities in New Jersey started to have online tax sales in 2012, and a few more joined in for 2012.
Not only was the interest rate bid down to 0% for most of the liens sold, but high premiums were paid - and premiums were paid even for small liens, it just didn't seem worth it for the individual investor.
In Florida the interest rate is typically bid down to only.
25%.
Investors are willing to bid that low because they know there is a minimum 5% penalty they will receive instead of the.
25 interest that they bid.
They are counting on the liens redeeming quickly, but if their liens go the entire 2 year redemption period before the property owner redeems that 5% penalty comes out to be only a 2.
5% annualized return.
The penalty is not an annualized interest rate.
It is a straight penalty paid on the certificate amount.
So which state is a good state for online tax lien investing? One of the states that I suggested at my last tax lien investing workshop might be better bet for online investing this year is Arizona.
It's not likely that you'll get double digit returns investing in any of the states that have online tax sales, so get that out of your head.
But it is still possible to get high single digit returns in Arizona on residential properties, and to get double digit returns for liens on vacant land.
Also this year many of the Arizona counties that have online tax sales have enacted a "Single Simultaneous Bidding Rule" for 2014, forbidding persons or entities from registering multiple bidding numbers.
If you are bidding in the Arizona tax sales this year, you'll have to pay attention to this new law, for not only does it prevent funds and institutional buyers from registering multiple bidder numbers, but it also prevents spouses from bidding at the same tax sale if they file a joint tax return, and it prevents you from registering as an individual and a business entity.
This new rule is meant to level the playing field between institutions and individual investors.
We'll see if it works!
But things are not always what they seem, especially to the inexperienced investor.
The states that have the highest statutory interest for tax liens also have the most competition.
A few counties in the state of Iowa for instance, had online tax sales for the first time in 2013.
Iowa has the highest interest rate of any of the states that have online tax lien sales - 24% per annum, so you'd think it would be a good place to go for online investing, but that might not be the case.
Most of the liens in the online tax sales were bid down to 1%.
That's not the interest rate.
Investors will get the statutory 24% interest on their lien - if the lien redeems.
What was bid down is the percent ownership of the property should the lien not redeem and the investor foreclose.
If you bid anything lower than 100% you don't get full ownership of the property should you have the chance to foreclose on it.
That may not be enough leverage to get the property owner to pay off the lien.
After all, even if you foreclose, you wouldn't be able to take possession of the property or do anything to it without the owner's permission - even if you had a 99% interest in the property! The next 2 states with the highest interest rate for online tax lien investing are New Jersey and Florida.
They both have a statutory rate of 18% per annum, but this rate is bid down at the tax sale.
Some of the Municipalities in New Jersey started to have online tax sales in 2012, and a few more joined in for 2012.
Not only was the interest rate bid down to 0% for most of the liens sold, but high premiums were paid - and premiums were paid even for small liens, it just didn't seem worth it for the individual investor.
In Florida the interest rate is typically bid down to only.
25%.
Investors are willing to bid that low because they know there is a minimum 5% penalty they will receive instead of the.
25 interest that they bid.
They are counting on the liens redeeming quickly, but if their liens go the entire 2 year redemption period before the property owner redeems that 5% penalty comes out to be only a 2.
5% annualized return.
The penalty is not an annualized interest rate.
It is a straight penalty paid on the certificate amount.
So which state is a good state for online tax lien investing? One of the states that I suggested at my last tax lien investing workshop might be better bet for online investing this year is Arizona.
It's not likely that you'll get double digit returns investing in any of the states that have online tax sales, so get that out of your head.
But it is still possible to get high single digit returns in Arizona on residential properties, and to get double digit returns for liens on vacant land.
Also this year many of the Arizona counties that have online tax sales have enacted a "Single Simultaneous Bidding Rule" for 2014, forbidding persons or entities from registering multiple bidding numbers.
If you are bidding in the Arizona tax sales this year, you'll have to pay attention to this new law, for not only does it prevent funds and institutional buyers from registering multiple bidder numbers, but it also prevents spouses from bidding at the same tax sale if they file a joint tax return, and it prevents you from registering as an individual and a business entity.
This new rule is meant to level the playing field between institutions and individual investors.
We'll see if it works!