"Tax Lien Fund"
CPS Tax Lien Income Fund I LLC Executive Summary November, 2010 Website: cpstaxlien.com Email address: email@example.com Mission Statement CPS Tax Lien Income Fund I LLC (CTLIF) • To generate above average rates of returns by investing in property tax liens throughout the country. • Goal is to earn high single digit to low double digit returns. • Considered by many to be lower risk investment What is a Property Tax Lien? When a real property owner fails to pay property taxes the local taxing authority or county will issue a tax lien on that property. The tax lien will then be sold at auction to generate the tax revenue for the local government. If the lien is not satisfied within a statutory period, the owner usually has the right to foreclose the lien. Typically, the low interest rate bidder wins the Tax Lien. What does a property Tax Lien look like? • CTLIF will be investing in tax liens (certificates) in Florida and potentially in other states • It is only practical to invest in tax lien auctions that are web based (internet) • All records are therefore web based • Tax lien is nothing more than an “electronic record” Benefits in Tax Lien Investing • Security-tax liens are secured by real property • First lien-against real property-first priority over mortgages, HOA fees, mechanics liens (exception certain government liens). • High equity position- lien represents small fraction of the assessed value-exception if there an numerous other outstanding tax liens Benefits……continued • Property tax lien amount due plus accrued interest is computed and collected by county • Property tax lien holder can petition for a tax deed if the tax is unpaid • Fixed principal-the principal and interest rate is fixed • Yield is attractive compared to alternative fixed income investments Which states to invest in? • Florida-initial concentration, excellent for investors; over 30 counties use web sites, auctions start at 18%, lowest rate bidder wins • Arizona, California, Illinois, and Texas and other states offer attractive returns and web based auctions Methodology • CTLIF establishes guidelines-minimum and maximum amounts to minimize risk • Dollar range generally; $500 to $30,000 • Assessed values generally > 10 times lien certificate value • Minimize properties with prior tax liens outstanding Estimated Losses • CTLIF estimates annual losses to be in the range of .50% to 1.00% of the portfolio • Losses occur from properties CTLIF chooses not to foreclose • Examples of possible losses- – Gas station with environmental issues- contaminated soil – Property with major decline in value-hurricane or major decline in value (Pensacola beach) Estimated Losses Foreclosures: – Property must be investigated before petition – All prior tax liens must be paid by petitioner – Petition court for tax deed sale – Place property up for sale Outcome: Petitioner obtains title if no other bidders show Sell the property immediately Small gain or loss on your foreclosure Total loss if you choose not to foreclose/petition Competition from other investors is the major risk • CTLIF considers institutional investors and investment companies the biggest potential threat who are willing to accept lower returns. • Institutional investors may dominate auctions and bid interest rates to low levels thus adversely impacting our ability to purchase high yield tax liens • Competition increased in 2010 from hedge funds and 12 banks (which used TARP $) Recent Competition Sample of 25 county auctions in Florida Average interest rate per lien 2008 12.04% 2009 14.11% 2010 9.03% Source: Polk County Tax Collector Other Risks Affecting Yield Quick redemption of tax lien lowers yield- If you buy a 12% tax lien that is outstanding for only 6 months your real return is 6% Reinvestment of idle cash is a major hurdle for CTLIF! Other Risks- Quick Redemptions Produce Idle Cash Historical repayment of tax certificates First year First six months 31% Second six months 18% 49% Second year Even throughout the year 49% Total redemptions end of 2nd year 98% Repayment history per Smith’s prior experience. Past redemptions are not a guarantee of future results. Investing Idle Cash Secondary auctions are held by Florida counties for Tax Liens unsold from the May/June auctions. These are called “County Held Certificates,” and made available for purchase at 18%. These auctions begin in mid June and are available throughout the year. The quality and quantity of secondary auctions may not be sufficient to keep our funds fully invested Investing Idle Cash Out of state (non Florida) auctions are held throughout the year CTLIF will be investing in certificates outside the state of Florida for diversification and to keep funds fully invested Estimated Returns Estimated gross returns on tax liens 12.00% (1) Estimated expenses and reserves: Management fees (2) 2.25% Trustee, legal and acct’g 0.35% Reserves for losses 0.65% -3.25% Net income 8.75% (1) Estimate from CPS Tax Lien Mgt. Actual returns will vary and may be materially different than the estimate. (2) CPS Tax Lien Management, Inc. 1.50%, Campbell Asset Management 0.75% Estimated Returns Registered Investment Advisors associated with CPS Investment Advisors through the CPAlliance program will be paid a management fee in accordance with their client’s contractual arrangement. The CPAlliance fee is not reflected in the previous estimated return. The following is an estimate of the net return to the CPAlliance client. Estimated net income 8.75% Estimated CPAllinace fee -0.75% Net income to investor 8.00% Estimated Returns Disclaimer: There will be years when returns exceed or are less than the estimated projections set forth previously. Excess returns or losses will be added to or subtracted from the value in CTLIF. Frequently Asked Questions 1. What type of Entity?-CTLIF is an LLC and taxed as a partnership for federal and state income tax purposes 2. What type of Income Tax reporting? partnership K-1 reported annually 3. What is type of taxable income? primarily “ordinary income” 4. Is there a minimum investment? $250,000 Frequently Asked Questions 5. Who is eligible to invest? Accredited Investors only 6. Who are accredited investors? Individuals or joint with net worth of $1,000,000 or more Individuals (excluding spouse) who have income of $200,000 or more in the last two years and expect to have the same level of income in the current year Joint income (including spouse) who have income of $300,000 or more in the last two years and expect to have the same level of income in the current year Accredited Investors 6. Who are accredited investors………continued A trust with $5 million in assets An organization described in IRC Section 501 (c) (3) with $ 5 million in assets IRA’s qualify provided the owner meets the definition of an “accredited investor” Qualified retirement plans provided the trust is directed by a person knowledgeable of investments, i.e. Registered Investment Advisor Note: Potential investors should consult their own legal advisors Frequently Asked Questions 7. How often is income distributed?-CTLIF estimates it will distribute income quarterly based on 2% per quarter ( 8% annually). Distributions will begin at the end of the investor’s first full calendar quarter. Example: investor deposit funds on April 15, 2011; first income will paid in September, 2011. Investors wishing to compound their funds may elect not to receive income distributions. Frequently Asked Questions 8. How often is principal distributed?-CTLIF will distribute principal after the investor’s second full year (the normal life cycle of a tax lien). Investors must notify CTLIF in writing 90 days prior to principal distribution request. Frequently Asked Questions 9. Who is the custodian of the funds?- National Advisors Trust Company, (NATC) a trust company in Kansas City, Mo., licensed to do business in all 50 states. will be the custodian and depository for the funds and tax liens. NATC will report quarterly to the investors their account balances. NATC has $6 billion in assets under management. Frequently Asked Questions 10. Will there be an annual audit?-Yes. CTLIF will employ the services an independent certified public accountant to examine the annual financial statements. A copy of the annual audit will be available on the website. Frequently Asked Questions 11. Who are the managers of CTLIF?- CTLIF will employ the services of CPS Tax Lien Management, Inc. which is owned by the principals of CPS Investment Advisors. CTLIF will also employ Campbell Asset Management LLC as a co-manager of the fund. The management teams have extensive experience in investing in Tax Liens. Disclosures This presentation does not represent a complete disclosure of all pertinent information. Investors should refer to the private placement memorandum for a complete discussion of all critical information before investing. This does not constitute an offer to sell nor is it a solicitation to buy a membership interest in the Company. The Company’s membership interests have not been and will not be registered under Securities Act of 1933 or the securities laws of any other jurisdictions and any offer of sale of the Company’s membership interests will be made, if at all, only by means of a private placement memorandum satisfying an exemption from registration under, and in compliance with, the Securities Act of 1933 and all other applicable securities laws.