Yo! I just want to start-off this post by expressing my extreme discontent with working at this moment in time. I’ve been working so hard that I’ve started eating bad (junk and fast-food), working out less, drinking more, etc. That sounds like a cliche of the “working man”, now that I think about it. There are a lot of people that “wake-up” with an extra 30 pounds due to such bad habits. It’s a bad chain reaction. Long-hours lead to less time for balanced meals which lead to less energy to workout and as far as the drinking part…I just like malt-liquor. Which was never a problem when I burned them off. My six-pack has turned into a four-pack and it’s fading. Dammit! I gotta stay fit. Without health there’s no wealth. I’m way too sexy. I need to find a new athletic challenge. Usually that keeps me going. If you can remember, I planned to run a half-marathon on Halloween. But my running partner got injured in a car wreck, so that plan was scrapped as I didn’t want to run another marathon alone…BORING. Part of this entire problem is because I’m bored with the routine of life right now…and I really hate when life is boring. I need to move asap! A friend from college told me recently that her job is moving her to Greece for like 2 months next Spring. She said I’d be welcome to visit for an extended time. That sounds right-up my alley right about now. We’ll see…
Anyway, back to boring-ass real estate. That’s why you’re here right?
So I was in Champaign, Illinois last Friday for the annual Real Estate Tax Sale. I had formed a partnership with another investor to serve as his agent for the sale. Since, I had some education and experience with the preparation and sale process from 2009, so we structured an arrangement: I provide the expertise and he provide the money and we split the interest payment down the middle or in the event of Tax Foreclosure, we’d sell the property at a wholesale price and split that by half as well. He brought 10K to the table for the sale. Not a lot, but hopefully worth my efforts…and tolerance for putting up with this dude. That’s another story. I mean…why is this real estate world full of weirdos?
This is an example scenario demonstrating how Tax Lien Sales work in the majority of counties in Illinois:
- Homeowner fails to pay their revenue-year 2009 taxes in September of 2010
- They have until the day before the sale to pay with late-fee in October 2010
- They don’t pay and their taxes are sold
- Tax Lien is placed on property
- Investor buys the Tax Lien from the county at the sale, bid is won by whomever is willing buy the lien and accept least amount of interest
- Tax Lien is awarded to winner
- Tax Lien investor gets certificate in the mail
- Homeowner and all of his friends donate sperm
- Homeowner now has money and pays off taxes
- The taxes paid cover the original tax bill, county penalties, and interest due to the investor
- However, if the Homeowner doesn’t pay the original tax bill and fails to do so for 3 years, the investor who bought the lien the first year, has the right to foreclose on the property
That’s it in a simplified nutshell. If you want a little more detail read this article I wrote for BiggerPockets back in the day. The great thing about Illinois is that the interest is set at 18% and is bid-down and the interest is accrued for every 1/2 year that the homeowner doesn’t pay. So at maximum, this can be the equivalent of a 36% annual interest rate.
But in my example, my partner brought 10K to the table and I was able to finish out with a weighted average bid of just over 10%. Don’t recall the number of liens we bought off the top of my head, but let’s just say for every lien bought, the homeowner waited till almost one year from now to pay-up. The money made would be approximately 10K *20% = 2K, split in two. So 1K each. Or quite a bit more if 3 years from now, we foreclose on one the properties.
This stuff is more intriguing than I’m making it seem…I think. Crazy profit potential in this, when you can use other peoples money. Some folks do short-sales, some folks rehab, some folks only do this. It should tell you a lot when you’re competing against banks when bidding for these liens. I’ve got another money partner for a tax sale in Rock Island county, Illinois in December. But only another 10K to bid with. Next year, I need to be playing with at least 300K.
– Peace Out
Interested in becoming a money partner for future tax sales? Hit me up on Facebook