noob attempting tax lien investing in illinois

21 Replies

I'm in Illinois and the annual tax lien sale is coming in the county I live in.  I've read Loftis' book and all the forum posts I could find that specifically talked about tax liens (and at least most of your blog posts Jerry K).  I am not trying to foreclose on property.  I am really only trying to get a better return on my money than my stock portfolio.  I plan to invest around 10k for my maiden voyage.  I've watched the videos on how to bid.  I haven't registered with the county yet but will do that very soon, and they should give me the list of parcels.  When I get the list, I plan to try to go through it and decide which parcels I would like to bid on.

So I'd like to ask, what am I overlooking?

What are typical first timer mistakes?

What do I need to know that I don't know?  How to ask more specific questions :) ?

Thanks in advance

I don't know why it posted twice.

I invest in Illinois tax certificates, however I do not go to DuPage County.  I would start by looking at the judgment book for the 2012 payable 2013 real estate taxes.  I would buy the buyer's comment software.  The average bid at last year's sale was only 2.07% with a weighted average of less than 1%.

First timer mistakes include:

Not knowing what you are biding on, buying someone's open, not completing your 22/5 notice properly...

If you have any more questions please let me know.

Good luck

@Ryan Adams I hope my posts helped in your understanding in general.  They don't really help in an IL auction.  I assume you are attending the DuPage county auction.  They use the RAMS computer auction system. 

For those outside of IL, the RAMS tax lien auction system is one where each bidder shows up to the auction and only by  preregistering do they get to bid.  They have a computer set up for each bidder in the auction room.  After a few announcements the auction starts.  Each lien only takes a few seconds and people have to punch in their bid in that few seconds.  Here is a video of the system used in the Peoria county auction a few years ago. You can see how fast each lien is sold.  I don't care for it since you have to be there in person, but it does seem to reduce the opportunity for steering the best underlying parcels to "a few friends" of the treasurer.

Ryan, my quick read of the rules indicated you have to give a $500 deposit, the list will cost you $250.00, and each certificate will have $104.00 in fees added to the tax amount!  You don't earn interest on the fees nor the list cost.

From the rules: Tax buyers pay the tax amount due, interest and a per parcel fee of $104.00. The statutory fees cover:

$ 10.00 for Costs
4.00 for Sales Certificate
20.00 for Tax Sale Indemnity Fund
10.00 for Tax Sale Automation Fund
60.00 for Sale in Error Interest Fund
$104.00 Total

WOW! You really have to land more than a handful of liens to cover those costs - even at 18%.  Since most liens are bid down to the under 8% rate, you had better hope you get some high rate liens and that the owner does not redeem for several months so you can earn as much interest as possible.

For example, a $3,000 lien will cost $3,104.00 (with fees).  The fees alone (which are not paid back if the owner redeems) equate to 3.467%.  If you won the lien at 18%, you earn 1.5% per month on the lien amount ($3,000).  So it takes just over 2 months of interest just to break even.  If the owner pays in the first 2 months you are losing money. If they pay in the 6th month (most do pay by then) you have earned 1.5% x 6 = 9%.  9% - 3.467% = 5.533%. Or net $165.99.  But wait there's more...

Are you familiar with the rules in IL about the correct way to notify the parcel owner of the lien on their property and the time frame in which you have to notify them? You will have had to notify the owner within the first 6 months of the lien via registered letter, so there are a few more dollars of costs to reduce your return.

I'm not sure what the average lien amount is in DuPage, but where I live (Will County), many of the homes are over $10,000 per year in taxes.  I'm sure there are smaller, older homes that will have less than $10k in taxes, so you could probably get 2 maybe 3 liens for $10k.  More liens if you go for vacant parcels since they will have lower taxes.

I don't want to discourage you, but IL, and especially DuPage county, is a deep pockets kind of game.  You need to buy many liens to cover the costs and get a good number that don't redeem right away.  If the interest rates you need to win are too low, it just doesn't make sense.

Originally posted by @Ryan Adams :

What are typical first timer mistakes?

What do I need to know that I don't know?  How to ask more specific questions :) ?


  • Bidding based on the assessed value of a property instead of the actual market value
  • Not understanding the rules and how they affect your return
  • Not understanding the hidden costs which @Jerry K. outlined. 
  • Not understanding the risk of a worthless property not redeeming.

I saw that I'd have to pay the $104 but couldn't find whether that got repaid or not. I called the treasurer and they told me that the $250 list wasn't much different than the list you get for registering. Thanks for the replies. I didn't catch all of that when I read through the statute, I'm going to have another look at it. 

Seems like the game is not for individual investors. I like tax liens but find the best way is to invest through a fund. Entry price is higher though and you have to be an accredited investor for most funds but you can get higher than stock market returns in a passive manner. I like the concept of the tax lien but the details and complexity make it not suitable for individual investing. Private lending is a simpler way to get better returns for your money but again, 10K is not enough of a starting amount.

Ryan:

Jerry is wrong about the $104.00 in fees, those fees are included in the amount of the tax lien and you do earn interest on those fees.  See 35 ILCS 200/21-250. 

Jerry is also wrong on how the interest is figured.  See 35 ILCS 200/21-355.

Jerry is also wrong about giving the owner notice.  See 35 ILCS 200/22-5.

I would agree with Jerry that the RAM auction goes very fast.  If you go to the RAM auction site you can see how many bidders there were at the last auction and what the average winning percentage was.

Jerry is right about the cost of the list. 

I've done this a few times, I grew up in South Dakota and I would take a 9 hour drive to Woodbury county IA. 24% interest on each lien and only 2 years before you can start the foreclosure process. Plus it's not a "bidding" process. Unless they changed it, it's been 4 years since I moved to Texas, it was $50/person. Simple process, they do a rotational selection sale (http://en.wikipedia.org/wiki/Tax_sale). 

It was worth the trip for us, I convinced my dad and brother to do it. We invested over 30k in the one year we tried it (before I moved) and two years later we made gross a little of $9200. 

Might be worth the trip for you.

The gal at the assessors office also said that the 104 is rolled into the lien. I'm gonna give it a shot. I looked at rams and the average is 2% but in illinois, you get that every 6 months so I think it could be alright.

My apologies. I did the interpretation from the DuPage county auction webpage - not the statutes.

I actually did a copy and paste on the Fees where it said they are in addition to the taxes.Obviously I don't participate in the IL auctions.

I'll stay in the corner now and be quiet.

They didn't give me the list I expected, but I understand a list will be in the newspaper this week. I didn't spot for the expensive, up to date list. This means that I will perform due diligence on some liens that won't make it to the auction. 

In regards to due diligence, I plan to look up properties on the assessors website to see if this is the first missed payment, what approx value the property is, and trying to ensure I don't bid on something worthless that won't redeem. 

Is there anything else I need to look at in regards to due diligence here? Again, my goal is to secure a better return on investment, say >5%. Knowing that illinois charges the penalty every 6 months, I think a 2% bid is the lowest I'd want but anything over that would be great. 

@Anish Tolia Do you mind sharing what fund is that? Can I use 401K (not Solo 401K) to invest in that fund? How's that compare to REIT trust?

@Ryan Adams

Just curious if you got involved in tax lien, if so, would you share your results? 

@Chris T. @Kin Lay

Illinois Scavenger Sale season starts in late June, I think almost all have $600+ min bids (This is not to be confused w/ lien sale, these are props that no one bid on, in most cases 6-month redemption period instead of 24-30 months). 

Because Illinois has insane high prop taxes, it's very probable to take a decent house for less than $10k.

@Matt David where can we learn more about this Scavenger Sale?  Any resource you can recommend? Have you participated in Sale before? Do they publish addresses before Sale? Thanks much, 

@Tonya Tra

They're listed online, or some are.  Some aren't.  The majority of them are on http://www.iltaxsale.com/new/index.php, but it doesn't include all 102 counties.  

I find there's an interesting dynamic in high property tax states when it comes to "scavenger" sales; in many counties the taxes are almost as steep at the mortgage, so are often a sizable presence of Average or above properties on the chopping block.  The tax interest penalties in Illinois are brutal, almost unconscionable if you ask me.   

Rumor is Cook County (Which is set for July 7th I think) will be the largest ever for a scavenger.  I'll believe it when the list is published of course.

@Matt David

have you tried buying thru scavenger sale for Cook County?  Would it be mostly undesirable properties in South of Chicago delinquent for 2-3 years?  I wonder who would be a good resource on this? 

@Tonya Tra

You'll see 10,000+ properties/parcels of land at the Cook County one.  Most will be in bad areas, BUT there will be a notable number that are in decent zip codes.  It will take you a few week to cull the list down, but if you make time to do your due diligence, you will find some decent investment opportunities for a song.

If  you are thinking of bidding at the upcoming Cook County scavenger sale and need pre-sale help or post sale legal work, let me know as this is my primary practice area (I have lots of free info available). You will need to prepare the first take notice within 4 1/2 months of your date of sale, which many people are unaware of or do not know how to prepare.  Also be aware that many properties in the scavengers sale have "issues" (exempt, parts of roads, slivers of land, etc.) Good luck!

@Emmett McCarthy

Remember, IICLE is our friend.

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