Bryan and I just returned from teaching a successful three-day Tax Sale Field Course in Austin Texas. The field course included one full day of classroom training and actual screening of properties; one full day of training in the field, visiting previously screened properties, the Travis County Tax Collector's Office and the Tax Appraisal District Office; and another day attending the Travis County auction and even visiting a property we were curious about that generated some interest.

Overall, it was a good tax sale. There was limited competition, and one house sold for $33,000 that was appraised for more than $70,000. Some nice lots also were available after the sale.

We enjoyed the personal interaction and level of expertise in the class. One thing we really like is learning from our students, who in this course included a developer, foreclosure expert, accountant, professional speaker, Texas landholder, and several experienced investors. It is nice to interact and make long-term friendships and business relationships; in fact, that is one of the hidden benefits of attending one of our seminars or field courses.

During October and November, tax sales are being held in Illinois, Colorado and few other states. Let's revisit Illinois tax lien sales.

If you are thinking of attending an Illinois tax lien sale, please plan ahead. According to state law, you must register 10 days in advance. Also, in most cases you will have to either purchase a list from the county or pick up the newspaper. Some of these lists are quite pricey because the county may wrap the registration in with purchasing the list. I am aware of only one county (Kane County) that offers its list online: http://www.co.kane.il.us/treasurer.

Remember that in Illinois, the interest rate is 18% for the first 6-month period. You bid the interest rate down, so in a competitive sale, the interest rates might be bid down to between 1 and 5%. Even at 1%, if your lien is redeemed in one month you've earned an effective annual interest rate of 12%. If you purchase enough liens, odds are a few will go to deed, resulting in substantial returns for just a little money down. This is because in Illinois you get the minimum 1% no matter how soon the lien is redeemed, and it is not uncommon for many of the high quality liens to get redeemed in less than a month. At big sales banks will buy up many high quality liens for low interest rates because they can often earn a 1% to 3% return on their money in a few weeks.

If there are no bidders on a parcel at the annual tax lien sale, the parcel is sold to the county's trustee at 18%. The county may authorize over-the-counter sales of these certificates. County certificates that have not been redeemed after two and a half years are available for purchase at the county's tax deed sale, referred to as the biannual scavenger sale. These sales are only held every odd year. Sales are normally conducted during the summer months, and for 2005 most have already been held.

Illinois is a great state for tax lien investing, with tax sale laws that are investor friendly. However, many of the counties are highly competitive. Remember, it only takes one investor, bank or investing group to attend a sale and bid all the properties down to 1%.

You will have to experiment with different counties or, in some cases, just accept the fact that all liens will be bid down to low levels. Besides attending a smaller sale, consider the location of the properties that the liens represent. Investing groups often focus on the liens in and around a city, and they may not bid on areas outside of the city or on the far side of a county.

In the end, you may have to be prepared to bid on several liens at 1% along with the other investors, and hope for a few that go to deed. This is still a great way to deploy your money, especially when you average the quick redemptions with a few liens that will go to deed. Your effective annual interest rate may end up being more like 5%, 10%, or even 50% or higher.

Stay tuned for my next installment coming in about one week.

I am preparing a special three-part series in which I will dive into a topic I get asked questions about again and again: How can I invest in tax liens and tax deeds without attending an auction?

Happy investing,

Michael Williams