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Tax Sale bids of 0% - why do Illinois tax lien investors bid 0% interest rate?
Tax Lien Study | June 1, 2007 5:37 PM
I've seen reports stating that in many Illinois (IL) counties competition between tax lien investors is so steep that most bids have been 0%. For example, many people who has been attending Cook County, IL tax sale report that most parcels are bidded to 0% right upfront. As soon as auction begins, they all go for 'Zero'. There's basically no bidding. In another example, on DuPage county's website, it say black on white that in the last several years the average successful bids ranged from 0% to 3%. So, what the catch? Why do they do it? Or the more accurate question is: "How do they make money on a 0% bid?". Here are the answers that I've come up with. You're welcome to comment or provide alternative explanation...
In Illinois, a tax lien buyer will bid 0% for one of three reasons:
1) Intimidated newbies: they bid 0% because they sees everyone else bidding 0%.
2) Numbers game for professionals: the more tax liens they buy the more chances they get that some of them may not redeem and they will get the properties.
3) Subsequent tax years: in Illinois, if you own a tax lien then you have a right to buy subsequent tax years at a flat rate of 12% a year, and with no competition.