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Tax Lien Investing returns 36% in IL? - how they get you!
Tax Lien Study | June 1, 2007 10:41 PM
Some websites claim that in IL investors gain up to 36% a year in interest earned on Tax Lien Investment. In theory, it can be done ... but only in theory. Here's how they come up with this number... In Illinois, the bidding on Tax Lien Certificates starts at the maximum interest rate of 18%. This amounts to a penalty paid by property owner if property is redeemed, and is what would be paid to the tax certificate holder if he got the winning bid at 18%. By IL statute if sold tax is redeemed within 6 months of the tax sales date then the investor gets one time of this percentage - 18%, if it is redeemed after 6 months but within 12 months, then the investor gets double - 36%. So, the overall yearly return on investment can get up to 36% of the property delinquent tax amount. While it all sounds fantastic, the truth is ... it's practically impossible to achieve since in Illinois most if not all tax sales are bidded down to 0% or close to 0% interest. So, if tax is redeemed within one year, investors earn nothing for that year.
Below is the excerpt from page 23 of the Illinois Property Tax System by Illinois Department of Revenue:
Then why are they willing to bid 0% ...??!! See my thoughts on this below ...