How Profitable is Your Tax Lien Investing?
Source: Joanne Musa - United States
Do you know how profitable your tax lien investing is? In this article you値l learn how to track your tax lien portfolio so that you know just how profitable you are at any time. Begin by entering all of your tax liens into a spreadsheet or software program. The best way to index them is by county/municipality, and tax ID (in New Jersey this would be block and lot). You値l need a column or field for the certificate amount and a column or field to input the interest rate that you are getting on the certificate amount. You値l also need to input any premium that was paid. You値l need to have a formula to calculate the penalty amount and a formula to calculate the interest due. These formulas must also take into account how many days have lapsed since you purchased the tax lien certificate. You値l also need to be able to track any subsequent taxes and the interest paid on them. And you will need a way to keep track of all of your expenses, both the expenses that are reimbursed upon redemption of the tax lien certificate and those that are not.
To calculate how profitable you are, take all the interest and penalties that are due both on the certificate amount and on any subsequent taxes paid. Add to this your original investment (the certificate amount) plus any subsequent taxes paid plus any expenses that are reimbursed upon redemption of the tax lien certificate. This is the total amount that you would be paid if your tax lien certificate redeemed. Subtract your total investment from this number. Your total investment is what you paid for your tax lien certificate plus any subsequent taxes that you paid plus any reimbursable expenses and non-reimbursable expenses related to your lien. This is your profit. Once you have your profit you can calculate the yield, or percent yield for each of your tax lien certificates. To do this, divide the profit by your total investment. If you want to convert this to an annual yield, you need to know how many days the lien was held for. Multiply the yield by 365 (the number of days in a year) and divide by the number of days that you held the certificate.
For instance if your profit was $360 on a tax lien that you held for 90 days and your total investment was $3600, your yield would be 10% and your annualized yield would be .10* 365 / 90 = .4055 or 40.5 %. You値l need to do this for each tax lien in your portfolio. Then if you want to, you can get an average yield or annual yield for your entire portfolio.
Since every state is different the calculations for penalties and interest will differ for each state and you will need a different spreadsheet or software for each state that you invest in. If you invest in the state of New Jersey there is software available that has all of this built in. It痴 called Tax Lien Manager, and it does much more that calculate the profitability of your tax lien portfolio. Tax Lien Manager will also calculate how much premium you can pay for tax liens and still be profitable and with Tax Lien Manager you can import detailed tax sale lists from LienSource. Tax Lien Manager also provides you with all contact data for New Jersey (tax collectors and county clerks) and pre-printed forms and letters to use in your tax lien investing.
Joanne Musa works with investors who want to reap the rewards of tax lien and tax deed investing. She is the author of the Tax Lien Lady痴 E-books, Tax Lien Investing Secrets and Tax Lien Lady痴 State Guide to Tax Lien and Tax Deed Investing. For more about tax lien investing, e-mail MoreTips@taxlienconsulting.com. To find out more about Tax Lien Manager, go to http://www.njtaxliensoftware.com.
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