With the first Illinois tax sales less than a month away, investors are gearing up and asking the usual questions. We thought we would take a moment to help you understand how the process works and answer some of those FAQs! We even provided you some recent client statements to help you better visualize the tax sale process and your role in it.
What is the minimum investment?
We are trying something new this year: We’re reducing our minimum investment for a limited time. The minimum investment for Illinois is normally $50k. We feel that is a good “get your toes wet” figure and, quite honestly, the work involved for a $50k account is no less than that of a $500k account so we’ve always believed that $50k was a good entry point. However, we have been hearing that there are some of you out there that have been watching us literally for years and are finally ready to take the plunge. We want you with us, so we’ve reduced the minimum investment to $30k until September 7, 2017.
Are the liens pooled, or how are they acquired?
Liens are purchased and immediately assigned into your name, your IRA name, or your business entity name. We hold all the original paperwork associated to the purchase and process the transaction on your behalf. If/when there is a redemption, the check will come made payable to you, not PIP.
What are your fees?
Fees vary, based on the type of fee model you choose. You can learn more about our models and download a copy of our Agency Agreement on our website at PIPGroup.com.
Note: If you are planning to invest at least the minimum investment of $50k, we will reduce your setup fee by 1%, if you notify us (and pay your reduced setup fee) by September 15, 2017. We do not need your capital for placement until the first week of October- just the setup fee with your verbal commitment of placement will hold your spot in line!
Why are you offering these promotions if Illinois is in such high demand?
We attend between 85 and 97 auctions every year in Illinois. Those auction all happen in the space of about 3 months. The more time we have to prepare, the better performance we achieve and the better we coordinate our team’s pre-auction planning. The 1% we save you now pales in comparison to the money we save—and, by extension, are able to make—through the better performance created with a little advance planning.
How do you achieve such high redemption rates?
This is a great question, with a fairly long and complicated answer. There are primarily 3 types of tax buyers in
- Institutional Buyers ( banks and hedge funds)
- Mom-and-Pop Shops
- Servicers like us
The institutional guys are primarily locked into the state’s largest auctions, such as Cook County, or the “collar counties,” the five most populous counties in the state after Cook. The mom-and-pop shops still have a lot of money to spend, but they are usually focused on very specific counties and they definitely have finite resources. On the other hand, a servicer like PIP has the resources to attend multiple sales on the same day all over the state of Illinois. In short, the institutional investors just aren’t interested in those smaller auctions and the mom-and-pop shops don’t have the infrastructure to be in multiple places at the same time-we do.
Illinois Tax Sales
What You Need To Know…
In the last question we covered how we acquire liens with high penalties, is to essentially attend the auctions with lower competition. Now that we have the liens, how does the investor get paid.
Is the interest earned, prorated-How do you come up with such high rates?
Illinois is what we commonly refer to as a “Penalty State.” What that means, is if we buy a lien in Illinois for a 10%, the homeowner has to pay you 10% over your investment immediately. If you bought it at 2pm and the homeowner comes to redeem at 2:30, they owe you a 10% penalty. If they wait 6 months, now they owe you 20%. A year? 30% and so on….
Our purchase rate average for 2016 was 17%, which translates to 34% per year.
How long is the redemption period in Illinois?
Redemption period can vary based on the classification code of the property type, but typically it is 2.5 years. We legally extend that right to 3 years, because the name of the game in Illinois is redemption and we want to allow as much time as possible for those liens to pay off. Foreclosure after those three years is a real possibility and the goal is to limit those options as much as possible.
How many of the liens you buy for me will redeem each year?
We like to see about 30% , or more redeem each year. Less than that and we are going to have to contemplate more plans for foreclosure. More than that and they are actually redeeming too fast! We want to get into those double digit returns, so we like to see as few redemptions in the first 6 months as possible.
What are the downsides to this investment?
You will never hear some of the catch phrases our competitors use like“Government Guaranteed”, or that this is a really easy, risk free investment. The biggest downside is that we do not have a crystal ball to know what is going to happen with the person that owns the property on a lien we buy for you, or what could happen to the property. We are very good at mitigating the risk and maximizing the return. With literally hundreds of thousands of liens bought, redeemed, sold and foreclosed, there is no sort of logic as to why things happen, or don’t happen.
Illinois, does however have great provisions in place to remedy unforeseen circumstances, should they occur. Let’s say we buy a lien on a 3/2 house, it is occupied and secure and one of the following examples occurred:
- A flood rips through the place, making it unlivable and the family moves out. On that event, we can file a court order to have the principal paid to you returned.
- Let’s say you initiate foreclosure and the owners rather see the place burned to the ground than see you take possession of their property. From that event, we can file a court order to have the principal paid for the lien returned to you.
You don’t get any interest, or fees back, but in literally any circumstance, if the property has been changed in any way (from the time we bought the lien) we can recover principal. Yes, even if the City went and cut the grass a few times, if we want to file under the legal provisions to recover principal, that would be enough for us to do so.