| In order to calculate how much premium you can | | | | ______________ |
| pay for a tax lien, you first have to know what | | | | Certificate Amount + Premium + Subsequent |
| your bottom line is. In other words, what is the | | | | Taxes Paid |
| lowest return that you are willing to accept on | | | | For this example, let's assume that the certificate |
| your investment? Then you can calculate just | | | | amount is $2000.00 and the annual taxes are |
| how much premium you can pay and still make | | | | $4000.00. The redemption penalty is $2000.00 x |
| the profit that you want. I use Tax Lien Manager, | | | | 2% or $40.00. Since it's after Aug 10th and you |
| a software program for New Jersey tax lien | | | | can pay 3 quarters of open (subsequent) taxes, |
| investing created by DataVentures I LLC to do | | | | interest on the subsequent taxes is 18% x |
| this for me. Tax Lien Manager computes premium | | | | $3000.00 or $540.00. Your total profit is $40.00 + |
| for a 4%, 5% and 6% return based on the | | | | $540.00 or $580.00. Your total investment without |
| assumption that the lien will be held for a minimum | | | | the premium is the Certificate Amount + |
| of one year and that you will pay all subsequent | | | | Subsequent Taxes Paid or $2000.00 + $3000.00 |
| taxes when they are due. Here's how you can | | | | = $5000.00. Calculate premium with a 5% return |
| calculate how much premium you can pay if you | | | | on your money as follows: |
| don't have software that does this for you like | | | | $40 + $540 / ($2000 + $3000 + X) = 5%, |
| Tax Lien Manager. | | | | where X=premium. |
| Once you know the return that you want, you | | | | $580 / ($5000 + X) = .05 |
| then have to know how many tax quarters are | | | | Multiplying both side of the equation by (5000 + |
| open at the time of the sale and what the annual | | | | X), you get: |
| taxes are. Let's assume that you are going to a | | | | 580 = .05 (5000 + X) |
| tax lien sale in August and that the municipality is | | | | 580 = 250 + .05X |
| on a calendar year. As of August 10th, you will be | | | | Subtracting both sides of the equation, you get: |
| able to pay 3 quarters of open (subsequent) | | | | 330 = .05X |
| taxes on any tax liens that you buy. | | | | Dividing both sides of the equation by .05, you |
| When you pay premium for a tax lien certificate, | | | | get: |
| your profit consists of the redemption penalty + | | | | X = 6600, or premium = $6600.00. |
| the interest on your subsequent tax payments. | | | | This is a simplified equation and does not take into |
| Your total investment is the certificate amount + | | | | account interest on future subsequent payments. |
| premium + subsequent taxes paid. Your total | | | | If the lien is held for one year and you keep |
| return on your money is total profit divided by | | | | paying the subs, your actual return will be higher. |
| your total investment: | | | | If you are using Tax Lien Manager, you will get a |
| Redemption Penalty + Interest on Subsequent | | | | more accurate result based on paying one year |
| Taxes | | | | of subsequent taxes. |