Financing Your Acquisition
This subject should really be discussed before the sale but we will talk about it now.
If you have a fair amount of capital for tax lien purchases, and for this purpose I would define “quite a bit” as more than $100,000, there may be the possibility to get some bank financing for a portion of the purchase. This use of leverage can, and I repeat the word, can, increase your return on investment. There are a number of banks who do finance tax lien acquisitions, and an even greater number of commercial finance companies who do so.
You will have to search carefully to find one who will do a transaction as small as $100,000, but there are some. In most cases the decision will be based on your financial statement, business experience, and business plan.
Do not expect to get more than a 50% lending authority. But if you do manage that, your $100,000 will allow you to purchase $200,000 in liens. The effect of this leverage can be dramatic.
Assuming you bought your lien portfolio at a 10% yield, with $100,000 invested you would make $10,000 per year. If you can get 50% leverage, your $200,000 invested would make $20,000 per year, and assuming you borrow at 6%, you would pay $6,000 in interest, making your net profit with leverage $14,000 an increase of 40%.
In most cases, if you do finance your acquisition, you will be required to deposit your certificates with the lender or set up at rust account with the lender of their bank.
Next Post: Servicing Your Purchase