With the implosion of Florida real estate sales, the tax deed business has slowed as well. This is not to say that properties aren't still being auctioned off, they are and in decent numbers, just that the amount being bid for properties at auction has dropped dramatically. Another interesting aspect is that a higher percentage of properties are being redeemed before tax sale, an indication that buyers are locating property owners and making offers prior to the auction.
Personally, I think the much of Florida is already in a recession. One point worth noting is the median interest rates being had at the annual county tax lien certificate sales. To give an example, in Citrus County the following numbers as they pertained to County Tax Lien Certificate sales were obtained from the Clerk of Court:
Year ---- Median Interest Rate Bid
2003 ---- 14.31%
2004 ---- 11.52%
2005 ---- 4.75%
2006 ----- 1.81%
2007 ----- 1.39%
Obviously, investors have been willing to accept lower and lower returns during the last several years of auctions. The question that arises is if we stay in a prolonged period of slow sales, combined with declining property values, how long will investors be content to sit on 1.5% returns with an asset that is declining in value? Will the upcoming sale in June 2008 see an increase in median interest rates bidders are willing to accept? I suggest we will see increasing rates at sales and we will also begin to see the number of delinquent properties start to rise. Once property owners capitulate and allow sale prices to come back in line with historical norms, the opportunity to buy tax distressed properties will begin to increase. I'd say we're at least 2-3 years away from getting back to 'normal.'
Sunday, December 30, 2007
Monday, July 23, 2007
Investing in Tax Lien Certfiicates
County-issued tax liens were the secret to making good-to-excellent returns on your investment for many years. That all changed when the real estate market exploded at the turn of the millennium and late-night infomercials appeared touting the ability to acquire $100,000 homes for $500. Today tax lien investing can still provide low double-digit returns on your money, but the ability to locate great opportunities has narrowed considerably.
All of Florida's 67 counties are required by statute to hold an annual auction (usually the first week of June) at which certificates are offered to bidders willing to pay the taxes on properties owing taxes for the previous year.
Bidders do not bid up the amount they are willing to pay but rather bid down the interest rate they are willing to accept in return for paying the delinquent taxes. In Florida, bidding opens at 18% and goes down from there.
An example might be a vacant lot with $200 in property taxes owed from the previous year. [NOTE: Properties that are homestead exempted require the opening bid to be 1/2 the tax assessed value of the property or the actual amount of taxes owed, whichever is greater.] The bidding starts at 18% until the rate reaches a point where no one else is willing to bid. In this case let's assume 10%.
In our example, the winning bidder pays the county $200 and in return receives a certificate with an interest rate of 10%. The certificate-holder has to keep this certificate for a minimum of two years and a maximum of seven before turning it in (redeeming it) for repayment with interest.
When a tax lien certificate is redeemed the county does not pay the certificate-holder from county funds. Rather, the County Clerk holds a tax deed sale whereupon the property against which the certificate was originally issued is placed up for sale at auction, with an opening bid equal to the amount owed the certificate-holder (this is a highly simplified example). If no one bids, instead of receiving his original $200 plus 10% accrued interest, the certificate-holder is issued a tax deed from the county, and for all intents and purposes, is the new owner of the property (again simplified, but generally accurate). If someone else bids and wins, the certificate-holder receives his original $200 investment plus the accrued 10% interest and the winning bidder becomes the new owner of the property.
With Florida counties placing information online, many investors have attempted to contact property owners listed on upcoming tax deed sales to see if the owner wanted to sell the property rather than lose it at a tax deed auction. Again, before the real estate boom, this was certainly a viable approach to reaching potentially motivated sellers. Nowadays, however, it seems any owner of property listed on an upcoming tax deed auction has been inundated with calls offering to buy the property at below market value before the auction.
These days probably the most effective method left to acquiring property cheaply via delinquent taxes is to either download the tax roll from a county tax collector's website, if it has been placed there, or to request the tax roll on disk from the county tax collector's office. This information is public record so tax collectors must make it available, but they can charge a fee for doing so.
Once the tax roll is obtained, you can import it into a spreadsheet (Access, Excel, Quattro Pro. etc., ) and begin to focus on those sections of the county you're interested in. One method I have found very effective in the past is to find parcels on the tax roll that are at least two years or more past due in taxes and held in the names of estates or out of state addresses. Held by an estate with an out of state mailing address is better yet.
Once you complete your spreadsheet list and produce a form letter offering to buy property, you can merge the two to conduct a monthly mailing campaign. It helps if you can supply an email address and better yet, an 800# in your letter to make responses as easy as possible.
This is a brief overview of the approach I've had success with and which is probably still the most effective way of acquiring tax-distressed properties.
All of Florida's 67 counties are required by statute to hold an annual auction (usually the first week of June) at which certificates are offered to bidders willing to pay the taxes on properties owing taxes for the previous year.
Bidders do not bid up the amount they are willing to pay but rather bid down the interest rate they are willing to accept in return for paying the delinquent taxes. In Florida, bidding opens at 18% and goes down from there.
An example might be a vacant lot with $200 in property taxes owed from the previous year. [NOTE: Properties that are homestead exempted require the opening bid to be 1/2 the tax assessed value of the property or the actual amount of taxes owed, whichever is greater.] The bidding starts at 18% until the rate reaches a point where no one else is willing to bid. In this case let's assume 10%.
In our example, the winning bidder pays the county $200 and in return receives a certificate with an interest rate of 10%. The certificate-holder has to keep this certificate for a minimum of two years and a maximum of seven before turning it in (redeeming it) for repayment with interest.
When a tax lien certificate is redeemed the county does not pay the certificate-holder from county funds. Rather, the County Clerk holds a tax deed sale whereupon the property against which the certificate was originally issued is placed up for sale at auction, with an opening bid equal to the amount owed the certificate-holder (this is a highly simplified example). If no one bids, instead of receiving his original $200 plus 10% accrued interest, the certificate-holder is issued a tax deed from the county, and for all intents and purposes, is the new owner of the property (again simplified, but generally accurate). If someone else bids and wins, the certificate-holder receives his original $200 investment plus the accrued 10% interest and the winning bidder becomes the new owner of the property.
With Florida counties placing information online, many investors have attempted to contact property owners listed on upcoming tax deed sales to see if the owner wanted to sell the property rather than lose it at a tax deed auction. Again, before the real estate boom, this was certainly a viable approach to reaching potentially motivated sellers. Nowadays, however, it seems any owner of property listed on an upcoming tax deed auction has been inundated with calls offering to buy the property at below market value before the auction.
These days probably the most effective method left to acquiring property cheaply via delinquent taxes is to either download the tax roll from a county tax collector's website, if it has been placed there, or to request the tax roll on disk from the county tax collector's office. This information is public record so tax collectors must make it available, but they can charge a fee for doing so.
Once the tax roll is obtained, you can import it into a spreadsheet (Access, Excel, Quattro Pro. etc., ) and begin to focus on those sections of the county you're interested in. One method I have found very effective in the past is to find parcels on the tax roll that are at least two years or more past due in taxes and held in the names of estates or out of state addresses. Held by an estate with an out of state mailing address is better yet.
Once you complete your spreadsheet list and produce a form letter offering to buy property, you can merge the two to conduct a monthly mailing campaign. It helps if you can supply an email address and better yet, an 800# in your letter to make responses as easy as possible.
This is a brief overview of the approach I've had success with and which is probably still the most effective way of acquiring tax-distressed properties.
Friday, May 11, 2007
Florida Tax Deed Sale Overbids
Tax Deed Sale overbids occur when a piece of real property sells for delinquent back taxes and the amount of the bid exceeds the amount owned in property taxes.
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