"Churning" tax liens - Posted by Ben (NJ)

Posted by Kathy on March 14, 2001 at 20:23:54:

Hi Ben,

Thank you very much for your mail. I have checked a few
web sites you listed here, and decided to follow Roy Stubblefield’s directions. I have purchased 3 Roy’s
state manuals and mailed out 102 letters to all IL counties last weekend.
How profitable is this business? This is a big
question mark in my mind. I am talking about hourly return from TLC business. For example, if a person spends 100 hours to get $1,000 profit vs. a person spends 10 hours to get $1,000 profit is a very different story. I am not looking for “survival” income, but a more profitable way to make income.
I’d appreciate if experienced people like you could
help me answer this question.

Hope to chat with you soon. Thank you again for your
response mail.


“Churning” tax liens - Posted by Ben (NJ)

Posted by Ben (NJ) on February 25, 2001 at 23:49:13:

I had an interesting conversation with a competitor of mine in the tax lien business. My policy has always been to buy and hold liens for as long as possible since the money invested accrues interest at 18%. As lienholder I can also continue to pay subsequent taxes as they become due and also earn 18% interest on these monies. There is also a one time penalty which kicks in on the tenth day after the lien is purchased. For purposes of simplicity, lets say on a $5000 lien, the penalty is a flat 4% or $ 200. My competitor
says right after that penalty kicks in, they send a letter to the property owner trying to induce a quick redemption
so they can get back the principal, ten days interest at 18% and the $200 penalty and get a whopping ROI. They then turn around and re-invest those funds asap at 18% and try to do it again. I can’t see the purpose. They may show an
astronomical annualized return but the actual dollar profit is low. For example, if I invested a dollar today and got back two dollars tomorrow, my annualized return is huge, but I still made a dollar, big deal! They also have the costs of acquiring those liens, i.e due diligence, paying bidders etc. Is this just a way to mislead their investors by showing big returns on paper or am I missing something?

Re: “Churning” tax liens - Posted by Kathy

Posted by Kathy on February 28, 2001 at 11:58:21:


If I understand correctly, this is a compounding issue, and it makes huge difference in the annual return of your investment. Here is the math:
For purposes of simplicity, assume your initial investment is $5,000, interest rate is 18%,
the one time penalty money can cover all expenses to find the next TLC.

If you can invest your $5,000 three times in a year, your annual return is
$5,000 * (1 + 0.18)³ = $8,215
($3,215/$5,000) * 100% = 64.3%

Kathy (IL)

Re: “Churning” tax liens - Posted by George

Posted by George on February 27, 2001 at 17:45:43:


Even that a dollar is a dollar as you posted, there is a difference between a dollar today and a dollar in 3 months. I think it is a very agressive way of investment. I don’t see anything wrong with it.

I like that approach also because if you happen to find one of the property owners who do not want it, you can actually ask to quit claim the property to you for a token amount of money, then you return would be bigger!!

It seems like a great idea…I may do it…

A Beginner’s Questions - Posted by Kathy

Posted by Kathy on February 26, 2001 at 16:03:50:


I have read a few of your messages at www.creonline.com and come to know you are a big TLC investor in NJ. I am very interested in Tax Lien investment and have read ?The 16% Solution? and checked out the web pages you recommended for other beginners. I?d greatly appreciate if you could answer my questions.

  1. What is the average annual return on your investment (yield plus other penalty fees)?
  2. Do you focus on one state (NJ) or several states? Do you focus on rural area counties or city area counties?
  3. Do you physically go to auctions? Do you usually bid and get 18% TLC or lower yield?
  4. Besides retirement accounts, can Tax Lien investors use 1031 exchange to get tax benefits?
  5. Did you start with part-time or full-time? For a beginner to put, for example $300K, to work, do you think he/she needs to be a full-time investor?

Thank you very much for your help!

Kathy (IL)

Re: A Beginner’s Questions - Posted by Ben (NJ)

Posted by Ben (NJ) on February 26, 2001 at 16:51:33:

Hi Kathy,

About six years ago my wife and I had left a small law firm to start our own practice. We had the basic concept in mind of making investments which generated legal work so we initially bought a large portfolio of credit card debt and began collections. This was profitable but very time intensive and a little too hostile for us. An attorney friend of mine was representing a large tax lien buyer and he introduced us to the concept of this high priority lien instrument which was both ultra-secure and generated very high returns. It also involved alot of legal work
so this turned out to be perfect for us. We have done it full time ever since and I recommend doing it full time because of the complexities involved. We have managed to keep our yields in the high teens largely due to the fact that we have taken title to a couple of very nice properties which resulted in returns of over 700%. Obviously they boosted our yield tremendously but those types of returns are the exception rather than the rule. I have a group of bidders who travel around the state and I do sometimes go to auctions myself when it gets really busy. Right now we only cover NJ but are looking into other states.
Good luck.