noob attempting tax lien investing in illinois

[Ryan Adams]

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.

[Jerry K.]

@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.