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After being tantalized by ActiveRE, I went looking for some info on Amazon. I am working my way through the 16% solution, but I found something that was just published and does a very good job of explaining the lay of the land (including the motivations and actions of institutions in this space): "Profit By Investing In Real Estate Tax Liens" by Larry B. Loftis, Esq.

I will have to take a look at the book you found. The 16% solution is very old so something more recent should be interesting.

John: Have you bought liens in NJ? I am trying to find out as much as I can before I start diving into this. I understand the auction process, etc., but what I need to know is the sequence of events and what the investor has to do if the lien is not redeemed in the specified time period. Would a county clerk be a good source for this? I know in NJ each individual municipality holds its own lien sales.

I have not purchased liens as I judged them to be a bad fit given that I travel. I would not be able to make it to auctions because of my schedule. I considered liens purchased over the counter but decided to go the discounted note route. There are other reasons but part of it is I am too lazy to focus on liens when I can focus on notes.

Can you talk a little bit about discounted note investing? Where do you find investment opportunities? What kinds of returns are we talking about? I assume that you evaluate these notes like any other debt instrument (i.e. borrower's ability to pay, amount and quality of collateral, etc.). Anything peculiar to discounted notes?

I find the notes through my RE investing network. I have been investing in RE for over 21 years so deals come past my desk on a regular basis and some of these deals involve notes.

Notes can be located through the public records and similar sources. All notes worth considering will be recorded.

The credit process is pretty much as you would expect. A note that has existed for a period of time has the benefit that the payment history can be reviewed. You may also find that an older note will have more equity above it if the property has risen in value.

For me discounted notes are more conservative then the RE deals I would do. I go from being the one who has the most to lose (the investor is the first person to lose as you have you money last in line) to being in the banker's position. As the lender I should be the last person to lose money if the deal does not go well.

What I give up is appreciation as the position is a fixed position with no variable upside.

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