I attended 2 New Jersey tax sales recently, after having not been a tax sale in a few months. I was not able to buy anything at either of these tax sales. From talking to other investors that I know, who have been at this game longer than I have, I've come to find out that things have changed this past year in New Jersey. It's getting more difficult in the past couple of years to get profitable tax liens in this state.
The reason that I was not able to buy any liens is because other investors were paying way too much money for tax liens for it to be profitable. New Jersey is the only state where the interest is bid down AND premium can be bid for liens. In almost every lien, the interest rate was bid down to 0% and large premiumss were bid. In some cases, it's worth it to pay premium for a lien and get no interest on the certificate amount. That is because once you have a tax lien certificate on a property, you can pay the current taxes and any outstanding taxes that the owner does not pay, and get the default interest rate (18%) on all those payments. So investors are happy to pay for the right to be able to pay all the consequent taxes and get a nice interest on those payments.
But every couple of years a new company gets involved in the game of tax lien investing in New Jersey and pays too much for tax liens. They bid up the premium on all the liens at every tax sale. In the past these companies have been after the larger tax liens – because their the ones that you can make the most money on, and they've left the small tax and utility liens alone. But now there are a couple of new companies that bid on everything. This is bad news for all the other institutional buyers and for the individual investors. Because either they will come away with nothing or get cooked up in the bidding and pay too much money for liens.
There were 64 liens offered for sale at both tax sales combined, out of these 64 liens, 36 were purchased by BV001 Trust out of Philadelphia, a fairly new tax lien investing company. The certificates they purchased at both sales totaled over $ 40,000 and they paid over $ 80,000 in premium. That in itself is not surprising, what is surprising is that more than half of the liens that they purchased were sewer liens under $ 200 and they paid $ 400 or $ 500 for each of them. They paid even more for greater utility liens, as much as $ 2,100 for a sewer lien that was a little over $ 1100. But their were not the only ones. FNA is another tax lien investing company that has been around for awhile, they only purchased 2 liens at one of the tax sales. Both of these liens were greater utility liens and they paid quite a bit of premium for each of them – as much at $ 4700 for one utility lien that was close to $ 2000.
You do get your premium back in New Jersey – without interest, if the lien redeems within 5 years of the tax sale. If the lien does not redeem and you foreclose on the property (which hardly ever happens) you do not get your premium back. So it's not like you¡¯re likely to lose that money, you are likely to get it back. But it can sit there with the municipality for 2 years or more while you wait for the lien to redeem. Most of us can not afford to have a huge chunk of money sitting at 0% interest for a couple of years, unavailable to us if we were to need it. But for the institutional buyers, doing just that allows them to corner the tax lien market.
The institutional buyers got 56 of all the liens offered in both tax sales. In the first tax sale that I went to they got all but 2 liens. One was an un-usable piece of land that no-one bid on and went to the township. The other was picked up by an individual investor at a steep price – he paid $ 800 for a $ 229 sewer lien. I guess he felt like he had to come away with something. In the second tax sale, 2 liens went to the township and 4 were picked up by individual investors, everything else went to the institutional bidders.
Since I have been involved in tax lien investing in New Jersey, I've noticed that it changes from year to year. But I'm usually able to get some tax liens at 18%. That does not seem to be a possibility right now with the new players in the market place. It's still a good investment for those bidders who have a lot of money and can let some of sit at 0% just for the right to invest some money at 18% interest. But the blended returns that I see investors getting now are not worth it for most of us. Right now secondary tax liens and tax lien investing funds that invest in states other than New Jersey and Florida seems to be the better investment. And if you have more money to invest look into tax deeds and redeemable tax deeds.