Real estate tax lien funds

[Account Closed]

Hello BP Community, has anyone been able to find a trustworthy real estate tax lien fund that offers reasonable fees and transparency? If so, could you please recommend one to invest in? Thank you very much!   

[Thomas Rutkowski]

I invest with PIP Group. They are not a fund, but if you want to put your money to work and earn consistent high returns, I highly recommend them. They do all of the hard work for you.

Contact me privately if you would like contact information.

[Simone Campbell]

Hi Tom,

Thank for providing information regarding PIP Group. I will contact you to request more details as well.

Best,

Simone Campbell 

[John Underwood]

Do they also lend money for tax lien auctions?

[Ned Carey]

There is at least one more thread here about PIP. It was not positive as I recall. You might want to search. 

I am skeptical of tax lien funds in general. Locally I have seen a lot of people that thought they were smart and they crashed and burned because the didn't understand the risk. I know how competitive the business is and I have seen some pretty bogus statements made by some of these funds.

[Dennis Weber]

@Thomas Rutkowski

As someone who has read nothing but negative reviews and doesn't  understand how this could work out well for anyone, I have to ask your reasons for endorsement. I would really like to know how you can get consistent high returns. And could you quantify the term high return?  10%? 15%? Higher?  

Regards, 

Dennis

[Dennis Weber]

@Account Closed

If you're an accredited investor, I'd think you should look more at performing note funds. If not accredited, maybe buying performing notes. You can buy them with performance warranties to mitigate risk. Plus you have the collateral to make for a pretty safe investment. I bought two notes returning >13% thru PPR. 

[Simone Campbell]

As a new investor, I also took the liberty of researching this firm and read less than favorable reviews for this organization. I am told by one of their reps that the initial investment is $50k for tax liens. This will allow you access to their inventory. Of course I decided to pass.

[Thomas Rutkowski]

PIP Group simply does the hard work for you. You can spend thousands of dollars on "systems" to learn tax lien investing. All those "systems" do is teach you how to do the hard work. I believe there is a $50K minimum, though I have always put in more than that. 

Simone Campbell incorrect. You do not "access their inventory". Each tax lien season, they will solicit capital from interest investors. They then start to research all of the liens that will be coming up for auction. All they do is spend your money for you. They do the due diligence. They go to the auctions. They bid. They are simply acting as an agent on your behalf. They are not buying the liens and then reselling to their investors.

From my perspective, they take my money and spend it wisely. As liens redeem, the money flows from the county to PIP to me. There is very little opportunity for fraud. Sure, I was a little concerned the first year, but once you understand that they are not holding onto your money in any way, there is little opportunity for fraud. They are managing paper and collecting fees. The service they provide is well worth the fees.

The IRR on my redeemed liens has been 20.5% over the four years I have been investing with PIP Group. Yes, that is net of fees. The Unredeemed liens still control a tremendous amount of real estate worth well more than I have into it.

[Dennis Weber]

 5% per year?

[Thomas Rutkowski]

Originally posted by @Dennis Weber:

 5% per year?

No. 20.5% per year. An IRR is the internal rate of return. It is an annualized rate of return. It is used when the cash flow and returns are variable and you want to be able to find the equivalent annualized rate of return.

https://www.biggerpockets.com/blogs/7595/49554-how...

[Dennis Weber]

I understand IRR (kinda, sorta). It's just that I can't believe it is 20% because the highest interest rate for redemption is Iowa's 24%. And that's only if it's not redeemed until the 12th month (2%/month). Sorry, not on redeemed liens. Not buying it.

[Jeffrey Allen]

I know nothing about the fund, but the high IRR is theoretically possible if they are in multiple states. EG, the monies could earn 5-8 percent in three months in one state, then immediately put into another state whose "season" is coming, repeat, and get into the twenties. However, I would think the fees would take a considerable chunk of this. Again, I'm not making any kind of recommendation, I just wanted to point out that in a perfect world, that type of IRR is theoretically possible.

[Ned Carey]

@Dennis Weber wrote

That reminds me of another point about tax lien investment funds/services. I think with any scrutiny they would be considered securities. This requires them to follow securities regulations. Yet the ones I have seen online seem to skirt the issue entirely and clearly are not complying. 

[Account Closed]

@Dennis Weber, thanks for the response. I have not heard of PPR before. I will look into this. How were you able to get comfortable that PPRs were a viable investment? Any specific funds that you recommend? Thanks!   

[Charles Worth]

@Dave Van Horn is the person you should talk to about note funds.

In regards to your question @Dennis Weber the IRR is highly sensitive to the timing of flows. I have helped with an institutional tax lien portfolio before and I can tell you that a lot of metrics used for typical investments can be tough when used for tax liens because of the unique nature of the flow of funds. I would be very interested to hear the flow of funds @Thomas Rutkowski (I am not saying your wrong just curious). For instance, is that IRR mostly the result of payoff timing (i.e. early payoffs)? Were you able to keep reinvesting to get the IRR on a consist basis so your yield was basically the same? How much were you able to allocate? 

Assuming we are not talking deeds here is what I would keep in mind (none of this is investment advice):

1) Assuming you are in a bid down states the yield can be a lot less than the stated yield, I have even seen it go to 0%

2) Why would they do that? Because you also need to buy next years taxes. All the tax authority cares about is someone pays taxes on time. So if you don't buy it someone else will and your asset (which is what backs your lien) could be compromised. So if you blow your entire bank roll on one auction you are in trouble. You need to keep buying liens. Course this is also a good thing because that second lien will come at a higher rate (which si why people bid it down).

3) Many liens are for tiny amounts and considering you have to do diligence to make sure you are not buying crap it can be time consuming. They sell you things based on the tax record so if the house burned down they will still sell you the lien, so be careful. Some of the smaller amounts can be a pain to deal with.

4) As you can tell a paper based product with yields like this is highly attractive. As such, there is a lot of competition for good liens esp. close to key cities like NYC, Miami etc. 

5) There are secondary markets for liens you can check on and if you want buy from. 

This is just some but not all of the issues and things to think about. 

[Dennis Weber]

@Account Closed is a weekly blogger on Bigger Pockets. He also sends out a weekly newsletter. I have bought two seconds from them. @fuquan Bilal at NNG , I think has a fund. @scott Carson, if not already, is starting a fund. If you don't know what notes are or want to do the work yourself, I highly recommend signing up on their web sites for free training. Dave and Fuquan like seconds and Scott likes firsts. 

[Account Closed]

@Dennis Weber, thanks for the tip

[Account Closed]

@Charles Worth, thanks for the heads up about Dave Van Horn  

[Mark Pace]

I have invested in PPR's funds for about three years and love them. They always pay on time and have never missed a payment. The best part is they pay 12%!

[Thomas Rutkowski]

Originally posted by @Dennis Weber:

I understand IRR (kinda, sorta). It's just that I can't believe it is 20% because the highest interest rate for redemption is Iowa's 24%. And that's only if it's not redeemed until the 12th month (2%/month). Sorry, not on redeemed liens. Not buying it.

Illinois pays 36% per year. Redemptions can come in at any time during the 3 year redemption period. Every lien in my portfolio is at 28% or better.

You should learn how to calculate an IRR. Its still 24% even if 100% of your liens redeemed in the first month at 2% per month. Its an annualized rate of return. You're clearly thinking in terms of a gross or nominal return. That's meaningless.

[Thomas Rutkowski]

Originally posted by @Charles Worth:

@Dave Van Horn is the person you should talk to about note funds.

In regards to your question @Dennis Weber the IRR is highly sensitive to the timing of flows. I have helped with an institutional tax lien portfolio before and I can tell you that a lot of metrics used for typical investments can be tough when used for tax liens because of the unique nature of the flow of funds. I would be very interested to hear the flow of funds @Thomas Rutkowski (I am not saying your wrong just curious). For instance, is that IRR mostly the result of payoff timing (i.e. early payoffs)? Were you able to keep reinvesting to get the IRR on a consist basis so your yield was basically the same? How much were you able to allocate? 

My calculations are simply based on cash flows for the redeemed liens. I rolled it up on an annual basis. So a lien that redeemed in month 1 of year 1 looks like it redeemed in month 12. That reduces the estimated IRR. Its really not that hard to calculate the IRR if you simply take the liens that haven't redeemed out of the calculations. I know exactly what I paid for those liens and I know the timing of the cash flows to when my investment was returned. My reinvestment of the redemptions also has nothing to do with the calculations. That would be a new investment with a new Year 0. That would enhance my own personal results, but the issue here is the performance of the tax liens. I have an MBA in Finance. I'm pretty sure I know how to calculate an IRR.

This doesn't make any sense. The first lien to reach the end of the redemption period has the right to petition for deed (foreclose). It doesn't matter if someone else purchases the subsequent liens in future auctions. They will be cashed out during the foreclosure. If I'm investing for the high interest, I don't care if the redemption comes from the homeowner, the bank holding the mortgage or from someone ahead of me who is now foreclosing. 

This is why it pays to use a company like PIP Group. They do all that hard work for you.

[Dennis Weber]

@Thomas Rutkowski

Illinois is an 18% penalty using a bid down method with a 2 year redemption period. 

[Thomas Rutkowski]

Originally posted by @Dennis Weber:

@Thomas Rutkowski

Illinois is an 18% penalty using a bid down method with a 2 year redemption period. 

This is what I hate about the BP community: a bunch of amateurs spouting incorrect advice as if it were gospel. I have been investing in Illinois tax liens for 4 years. It is 18% for each 6 month period. It is 3% per month or 36%/year. If you look carefully at the redemption period, you will see that the lienholder may extend it to 36 months by filing notice with the municipality.

[Charles Worth]

@Thomas Rutkowski

I am certainly no amateur I assure you. I am not an expert either nor do claim to be.

I have been in finance for a very long time as well, it just seemed high unless the IRR was because of short time periods using a metric that went . That would still be a valid IRR if you were buying inventory from a source that could keep selling it to you (i.e. if you rebought more liens upon redemption). However, my point was if you expect to replicate that by going to tax sales in only one area than yield might be a more appropriate metric if you only bought once per year and expected to get that stated return. You may understand the flows but not everyone does and this is a forum for everyone's benefit.

I am not sure what you are referring to by the next lien doesn’t matter that is not true at all. I will tell you I have never invested in IL tax liens but I have invested in other states and my two points are certainly valid at least in the states I know. Again I only know the states I have dealt with.

• 1)People bid down the first lien so they can buy the liens that come later. Buying the next lien is a huge part of most tax lien strategies for people buying a lot of liens
• 2)Not buying the subsequent lien is a huge mistake not just because it’s a good yield but because as far as I know new liens take priority over older ones. Almost, as important if you hit the lottery and get the home itself for what is probably a small sum having the other lien will hugely complicate your life.

I certainly agree about using an outside company that was my point. I don’t know the company referenced but its tough on your own for sure. We used an outside party as well. 

[Emmett R. McCarthy]

In IL, a tax lien investor can pay and "post" subsequent years' taxes to their initial tax sale. Those subsequent years earn a penalty rate of 12% per year or part thereof. Many initial tax sales go for 0-2% but posting subs increases the returns in the event of a redemption.