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Calculating Premium for Tax Lien Sales in New Jerseyby Joanne Musa Send Feedback to Joanne Musa Calculating Premium, Tax Lien SalesMore Details about Calculating Premium, Tax Lien Sales here.
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Once you know the return that you want, you then have to know how many tax quarters are open at the time of the sale and what the annual taxes are. Let's assume that you are going to a tax lien sale in August and that the municipality is on a calendar year. As of August 10th, you will be able to pay 3 quarters of open (subsequent) taxes on any tax liens that you buy. When you pay premium for a tax lien certificate, your profit consists of the redemption penalty + the interest on your subsequent tax payments. Your total investment is the certificate amount + premium + subsequent taxes paid. Your total return on your money is total profit divided by your total investment: Redemption Penalty + Interest on Subsequent Taxes _______________________________________________ Certificate Amount + Premium + Subsequent Taxes Paid For this example, let's assume that the certificate amount is $2000.00 and the annual taxes are $4000.00. The redemption penalty is $2000.00 x 2% or $40.00. Since it's after Aug 10th and you can pay 3 quarters of open (subsequent) taxes, interest on the subsequent taxes is 18% x $3000.00 or $540.00. Your total profit is $40.00 + $540.00 or $580.00. Your total investment without the premium is the Certificate Amount + Subsequent Taxes Paid or $2000.00 + $3000.00 = $5000.00. Calculate premium with a 5% return on your money as follows: $40 + $540 / ($2000 + $3000 + X) = 5%, where X=premium. $580 / ($5000 + X) = .05 Multiplying both side of the equation by (5000 + X), you get: 580 = .05 (5000 + X) 580 = 250 + .05X Subtracting both sides of the equation, you get: 330 = .05X Dividing both sides of the equation by .05, you get: X = 6600, or premium = $6600.00. This is a simplified equation and does not take into account interest on future subsequent payments. If the lien is held for one year and you keep paying the subs, your actual return will be higher. If you are using Tax Lien Manager, you will get a more accurate result based on paying one year of subsequent taxes.
Joanne Musa works with investors who want to reap the rewards of investing in profitable tax lien certificates and tax deeds. Her tax lien investing articles appear all over the Internet. Tax Lien Lady’s Member’s Area is designed to help you navigate though the steps to building a profitable portfolio of tax liens or tax deeds. With 3 full courses, dozens of videos, and monthly webinar training, you’ll quickly move forward on your journey to tax lien investing success! Join us at www.TaxLienLady.com/Membership.htm
Keywords: tax lien sales, New Jersey, Calculating premium, investing, tax liens This article has been viewed 168 time(s).
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