Pennies on the Dollar? (Part 1)

We’ve all heard the infomercials touting the great investment opportunity of tax lien investing. So can you really get homes for pennies? Well yes and no.

Counties need the funds from property taxes to pay the Sheriff and so on. Somehow these counties need to collect the taxes due. If the taxpayer cannot meet their obligation, then the counties look to outside sources to pay those taxes. The how to collect unpaid taxes are determined by the state. States either collect the unpaid taxes through tax lien sales, tax deed sales or a combination of the two.

Through tax lien sales you can purchase a lien for unpaid taxes on a property with the right to foreclose at a future time. Note the right to foreclose is not the guarantee to the property. Tax Lien states such as Arizona or Florida annually sell unpaid property taxes as liens to investors at an agreed interest rate. (The top interest rate in Arizona is 16% and 18% in Florida.) During the sale/auction, investors bid to win the right pay the taxes owed and place a lien on the property. After a period of time set by the state, generally several years, the lien holder if still not paid back has the right to initiate foreclosure proceedings on the property owner. Even during the foreclosure process the property owner can pay the tax lien and associated costs and keep their property. It is the aforementioned interest rate that attracts investors like myself to tax lien sales rather than the chance to acquire property.

At a recent sale I purchased an $800 lien on a property valued at over $80,000, hence the term “pennies on the dollar.” If after three years the property owner has not paid their back taxes, then I can begin the foreclosure procedure. I don’t expect to acquire this property; my objective is to earn a 12% rate of return on my investment until the property owner can settle up with the county.

An investor will typically only get the property about 2% of the time as a result of purchasing a tax lien sale certificate. That’s a far cry from the ads on TV. Tax deed sales result in the investor acquiring the property, but is it really “pennies on the dollar”? Check back for Part 2 for the answer.

Linear Income or Residual Income?

We all know about linear income even if we don't recognize the name. It is income one receives for the hours put in on a job. Work for X time frame and earn Y. Most of Americans earn linear income from the day they begin in the workplace to the day they retire, then the money train stops. But what about after retiring? Well, hopefully while earning a linear income the worker saved enough through 401k or pension plans to supplement Social Security enabling them live a comfortable lifestyle in their golden years.

Residual income on the other hand, is a source of income that keeps coming in; from work done once. Several fields provide the opportunity for residual income; acting, insurance and network marketing come to mind. Actors are paid a fee for appearing in movies or TV. They also earn “residuals”. Movie actors receive residual payments when movies appear on TV or DVD. Television actors, residual payments start when the show goes to reruns or to DVD. Insurance agents are generally paid a commission on the new insurance policies they sell. An agent also receives renewal commission each time a client renews their policy. A Network marketer builds a team as well as a customer base. They earn income on purchases made by their customer base as well as sales earned by their team. Along with the opportunity to make a comfortable living while “working” people working in residual earning fields continue to generate income on work product produced once. The retirement puzzle for residual income earners adds an additional source of money for the retirement pot.

I’ve done the linear income model for years. I think it’s time to try the residual income model. Work once, get paid multiple times, this is my new goal.

Epic Snow & Ice Storm NOT, just another NJ snow storm

The trees got the worst of this storm.
Picture by Amanda Donner

This past week, the news was all a buzz about the snow and ice storm crossing the country. Dire forecasts scared the bejesus out of most of us on the east coast. A snow storm is one thing, but an ice storm is quiet another animal. Reports coming from the Midwest on conditions there only heightened our concern. The parking lot at the supermarket earlier this week was packed. Long lines at the checkout counter and empty shelves were the norm.

In northern NJ, the storm started Monday night with snow into Tuesday morning. Undeterred, I ventured out early in the morning to clear my patio of the couple inches of ice had accumulated in advance of the ice portion of the storm. While I was at it, I cleaned the car & topped off the gas tank in case of the pending ice brought down power. Luckily I didn’t lose power as the ice never really accumulated. For all the doom, gloom and dire warnings of the weather people the storm in my area, was pretty lame. Even so, I along with most of my neighbors was housebound for the better part of two days. In order to keep from going stir crazy I scrubbed the bathroom down (is there another room that’s more yucky to clean?), sorted my paperwork for 2010 (my accountant will be thrilled) and sent valentines to friends. Ever since my friend Gen introduced me to Send Out Cards, I’ve been having fun sending cards for all kinds of events that I never would have before. 

While the storm didn’t live up to the hype in my area, it was a productive for me. Even so, I’ve very happy to be able to get out and about again. I’m off to breakfast with a friend, have a great day!