Tax Liens In Illinois

[Chris Schwartz]

Hello BP Community,

I am a novice investor looking to get started in investing in tax liens. I currently live in Missouri, outside of St Louis, MO. I am looking to invest in Illinois Tax Liens since the return is higher than Missouri and most properties would be within a few hours driving distance for me. I have picked up a number of books on tax liens investing so I feel I have a grasp for the basic concept, but would be interested in learning more from more seasoned investors.

I have close to $15,000 in "expendable" income I would like to invest. I would be ecstatic to receive a 16%-18% annual ROI. From what I have read, this seems achievable, but I am skeptical as this sounds too good to be true. I have little interest in trying to acquire property through foreclosure, and would prefer to simply collect the tax penalties as they are paid. I also work full time and would be researching properties during nights and weekends.

Since I do have to work through the week, it seems attending auctions may be difficult (but doable, if I take vacation time). If possible, I would prefer finding "over-the-counter" properties to invest in that are left over from auction.

My questions are as follows:

1.) Is it going to be too difficult to find good properties to buy tax liens on after auctions in Illinois? Is it more of a 'requirement' to attend auctions?

2.) How should I go about getting a list of properties available "over-the-counter"? Is this simply a matter of calling and requesting the list from the county's tax accessor? Is it best to wait until right after an auction has ended to do so?

3.) I plan to drive by all properties I bid on, but there is only so much you can tell about a property by driving by. What methods are investors using to valuate properties before bidding/purchasing tax liens?

4.) I have heard that for tax liens it is best to try to pay between 3-5% of the actual property's fair market value. I was wondering what margins or rules of thumbs other investors were using.

5.) Does anyone have tips for maximizing the return on the tax lien? Its my understanding that if the individual who owes on the tax liens pays the lien off immediately, your return is almost nothing.

6.) For anyone that invests in Illinois, I would be interested in getting an idea of what your average ROI. Is 16-18% a realistic expectation?

7.) Most of what I have read has stated that tax lien investing is VERY low risk. I become VERY skeptical of any claim of an investment opportunity that is low risk AND returns ~18% ROI. There is an obvious liquidity risk, since your cash may be tied up for ~2 years. The other major risks I have heard is environmental and IRS tax liens. However, most of these at least sound like they would be rather simple to avoid. What is the risk that I am not accounting for?

Any and all advice is much appreciated. If there are any active Illinois Tax lien investors around the St Louis area, I would be happy to buy them a nice dinner in exchange for allowing my to pick their brain!

[Jerry K.]

@Ned Carey There is an advantage in the online auctions to bidding numerous accounts. The auction software randomly picks a winner if more than one account bids the lowest rate. So if I have one account and a bank has 100,000 sub accounts and we both bid the lowest rate for a lien, then the software randomly picks one account to win. The bank's 100,000 accounts to my 1 account.

The online auctions are open for bids to be entered for weeks, so they do not use date entered as any factor in determining who wins. I usually wait until the last 24 hours so that I can see how many bids in total are entered for a lien. I can't see at what rate anybody bid, but I can see the total number of bids up to that time. Lots of institutions bid at the last minute.

This video I did in 2011 explains what I'm talking about. 2011 video explanation of my auction and bid analysis.

I don't have a lot of posts on my Biggerpockets blog, so you can read through all of them fairly quickly. I talk several times about how sub accounts are used and how you can still beat the big boys - just maybe not at the rates you want. The link to the blog is in the signature line below.