Introduction to Florida Tax Sales
Florida is a popular tax sale state offering investors tax liens and tax deeds.
The state transacts several hundred million dollars of properties annually, providing opportunities to seasoned and new investors.
The stable investing environment has allowed investors to succeed with various business models leveraging the guaranteed 5% return, secondary lien auctions, and each county’s different bidding rules and schedules.
Florida tax liens can provide rapid gains for investors who can deftly handle the fast-paced redemption pattern in many areas.
On the other hand, tax deeds are more of a slow burn because of the multi-year process for tax deed applications and title actions. While this complexity can be intimidating, it opens up ample space to develop a successful investing approach.
Tax Sale Resources is positioned to guide your efforts in Florida because of our depth of experience and knowledge in the local market.
Over the past fifteen years, we’ve developed robust tools to empower investors, analyzed vast amounts of information to anticipate emerging trends, and, through our financing partnerships, shared in the success of wise investors.
Here’s how to find your niche in Florida’s tax sales and accelerate your business to new heights.
The Florida Tax Sale Process
The Florida tax sale process contains two aspects: liens and deeds. Here’s a breakdown of how to navigate both investment types.
Profile of tax lien sales in Florida
Florida counties conduct tax lien sales through online auctions (with only a few counties holding live auctions) and utilize a bid-down method.
Counties set the starting interest rate at 18%, and investors submit lower percentages to outbid one another.
The high competition in these auctions usually results in bids as low as a quarter percent.
In cases where multiple bidders bid a quarter percent, a random selection process determines the winning bidder.
However, a loophole in some counties allows bidders with hundreds or thousands of Employer Identification Numbers (EINs) to flood the auctions with their proxies in every bid, swaying the odds massively in their favor.
Although the IRS now prohibits people from creating thousands of EINs for themselves, some counties in Florida still allow bidders with multiple EINs to participate. This dynamic has created a miniature industry of EIN owners renting out their numbers to bidders participating in multiple-bidder counties.
Fortunately, about 60% of Florida's counties enforce a single bidder rule to ensure fairness.
Due to this variation in bidding regulations, investors tend to avoid counties where multiple EINs are permitted and favor those with single-bidder rules. Single-bidder counties allocate each investor with one bidding ID during auctions, leveling the playing field.
As a result, folks getting started in Florida tax lien investing usually stick to single-bidder counties.
In Florida, investors often implement the "fast five" model.
Florida's tax sale statutes require property owners to pay a 5% penalty regardless of how quickly they pay their delinquent taxes. Investors receive this 5%, creating a solid return even if the lien redeems quickly. So, fast five investors target liens likely to redeem within the first month, maximizing returns. Careful research helps investors identify liens with higher probabilities of early redemption, facilitating fruitful investment decisions.
Tax liens in Florida have a seven-year lifespan. So, investors don't buy liens and sit on them forever, hoping for interest earnings. Old liens typically aren't enforceable, so it's best to stick to liens less than seven years old because you can file for a tax deed application (TDA) during this seven-year period.
Florida law requires investors to wait at least 22 months before filing for a TDA.
In other words, you can start a TDA for a lien 22 months after winning it at the auction. A successful TDA turns a tax lien into a tax deed, which then goes to a tax deed auction.
If an investor bids on the deed, the lienholder loses all chances of property ownership. And, because Florida has an active tax deed investing scene, lienholders seldom get the chance to turn liens into real estate holdings.
Investors typically don’t take property ownership by owning the lien in Florida because other investors snap the tax deeds during auctions.
Setting aside the pros of quick 5% earnings and accessible online auctions, Florida tax liens (also called tax certificate sales) also have some potential pitfalls.
For one, the “fast five” is weaker in inflationary and high-interest markets. So, if you’re borrowing capital to invest in Florida tax liens, your loan’s interest rate will be higher than your return. You'll incur unprofitable interest costs if the lien takes a year to redeem.
Additionally, the online auction setting is a double-edged sword. These auctions are accessible to investors across the country, increasing competition.
Conversely, during live auctions, the competition is limited to investors who physically attend and bid on liens.
Another aspect to consider is how liens typically redeem in Florida. Most liens tend to redeem in one of two instances: after the first few months or close to the end of the seven-year expiration period of the TDA process.
This leaves a gap in the middle where redemption rates are lower. So, investors must choose between two primary strategies: the "fast five" model or leveraging the nuances of the TDA process.
The TDA process involves applying for a tax deed and paying off all other outstanding liens and taxes on the property. While this approach demands more initial capital, it offers the advantage of earning 18% interest on the entire amount.
Investors adopting the TDA strategy seek out liens likely to progress to this stage. However, this method entails extended waiting periods and potentially higher financing costs in today's market.
Therefore, investors must weigh the risks of seeking immediate returns or opting for the long game.
Profile of tax deed sales in Florida
Investing in tax deeds in Florida can be profitable in two ways: You can file a tax deed application (TDA) and obtain insurable title to the property to become the new owner, or you can wait for the tax deed to sell at auction and collect the proceeds.
The first option entails filing a TDA after holding a lien for seven years and undergoing the necessary foreclosure procedures.
Once you file a TDA for your lien, the county conducts a title search and notifies interested parties, theoretically eliminating mortgages (unless parties were not adequately notified; more on this later).
However, as it is not a judicial process, purchasing a tax deed at auction does not provide title insurance.
So, you'll need a separate quiet title action or title certification process to obtain it post-sale.
There are three primary paths to obtaining insurable title in Florida: waiting two years from the TDA filing date, waiting two years from purchasing the deed at auction, or pursuing a separate title certification process. Once you obtain an insurable title, you can rent or sell the property.
The other route is to wait for another buyer to purchase the deed at auction and receive the proceeds. This option takes less work and is viable for all property types, including vacant land.
As the information provided thus far suggests, investing in tax deeds in Florida demands a specialized approach due to complex and unique market dynamics.
Remember the title search caveat mentioned above? The county's title search may overlook secondary mortgages, leaving you responsible for undisclosed encumbrances.
For instance, the previous owner may have left the lawn unmowed for years. Some municipal fines charge $500 per day for this infraction. As a result, you could purchase a home with a $50,000 municipal lien from uncut grass if you neglect due diligence when investing.
Likewise, Community Development District (CDD) liens and PACE loans present further challenges.
CDD back fees and PACE loan assessments can significantly impact a property's value and saddle investors with financial burdens.
So, thorough research is crucial to understanding any hidden liens, second mortgages, etc., that weren't extinguished when the county sent out notifications.
Over the Counter Tax Liens and Tax Deeds in Florida
Over-the-counter (OTC) tax lien investing in Florida comprises two main categories: unpaid liens from failed auction purchases and liens that never sold at auction.
The first category comes from investors who win bids but have insufficient time or resources to complete their purchases. When an investor wins a bid on a tax lien in Florida, they don't have to put up the entire amount immediately.
You have a specific amount of time to wire in or deposit the remaining amount due.
However, not every winning bid results in a successful purchase. This can happen for various reasons, such as the failure to secure investing capital in time.
Florida's annual tax lien sales volume is $600 million to $700 million, inevitably leaving several million dollars of good liens that were successfully bid on but not purchased.
Most counties hold a secondary auction for these liens. However, instead of a bid-down auction, it's first come, first serve.
So, buying a lien at a secondary auction or over the counter means you'll get the full 18% rate of return instead of the 0.25% that characterizes most conventional bid-down tax lien sales in Florida.
Remember, the bulk of tax liens in Florida will go to the winning bidder, so secondary auction/over-the-counter liens aren't viable as a large-scale investment model.
However, staying on top of the over-the-counter lien lists can help you nab lucrative investments now and then.
The latter category of over-the-counter liens typically aren't as profitable. These are liens that investors ignored throughout two auctions and are available to purchase directly from the county. In today's market, the lack of interest in these over-the-counter properties suggests their limited value.
Unlike in the past, when opportunities to acquire over-the-counter deeds were more abundant, the current landscape indicates that most valuable properties have been exhausted from this pool. New additions of significant value to this over-the-counter list are infrequent at best.
For this reason, investors should approach over-the-counter liens with caution. The competitive nature of Florida's tax lien market means that properties passed over in multiple auctions may have underlying issues.
While over-the-counter liens may still hold value, identifying worthwhile investments amidst a sea of options requires significant time and expertise. Tax Sale Resources offers a custom list to streamline the search for valuable over-the-counter liens, leveraging data aggregation to facilitate easier identification of lucrative opportunities.
Keys to Winning in Your Florida Tax Sale Investing
Whether you’re a veteran or just getting started in Florida tax sales, here are the essentials to remember:
Identifying the best markets
To identify the best markets for tax lien investing in Florida, savvy investors rely on market data to assess various factors influencing investment success. This data includes the number of available liens, which markets hold single-bidder auctions (creating an even playing field for all investors), and historical lien redemption rates.
Tax Sale Resources offers an Accelerator program for investors who have developed successful models in Florida but are having trouble scaling.
We provide a dedicated team of experts, high-powered market identification and research tools, and capital to boost your business to new heights.
Remember, market competitiveness varies annually due to demand, property availability, and investor interest.
While some markets in Florida are highly competitive, others offer less intense competition. However, balancing competitiveness and the desirability of owning property in a market with less demand is essential.
Research the tax sale properties efficiently
Efficient research is critical for due diligence in tax deed investing.
Tax Sale Resources offers analytical data to guide investors in their decision-making process.
By leveraging property-specific insights, investors can pinpoint counties in Florida with favorable market conditions for their desired property types.
For example, while one county may offer excellent deals on vacant land, another may not present similar opportunities.
Our market analysis tools (provided in the Accelerator Program) enable investors to narrow their search to counties aligning with their investment preferences and objectives.
Whether investors seek less competitive markets or specific asset classes, our platform provides tailored research to streamline the investment process and maximize returns.
Additionally, our research methodology goes beyond sets of spreadsheets. Our Accelerator program provides more thorough knowledge through drive-by inspections and advice from our team of expert analysts.
These tools allow you to invest with precision in Florida tax liens and tax deeds.
Investing models that work in Florida
In Florida tax sale investing, success hinges on adopting effective models tailored to the unique dynamics of the market. Here are three example investing models that have proven successful:
- The Fast Five Model: This approach involves targeting properties with a high likelihood of early redemption. By analyzing historical data, investors can identify properties that repeatedly become delinquent year after year and consistently redeem within the first few months. Leveraging this insight, investors can strategically bid on these properties, particularly in single-bidder areas where competition is more balanced. The scalability of this model allows investors to pursue multiple opportunities, increasing the likelihood of securing profitable investments.
- TDA Date Model: Conversely, some investors focus on properties more likely to redeem near the end of the seven-year period. While predicting these outcomes can be challenging, investors can analyze historical redemption patterns and current market trends to identify properties that were historically redeemed later in the tax deed application (TDA) timeframe. Investors can capitalize on late-stage opportunities by avoiding properties that quickly redeem or tend to redeem midway through the TDA process, maximizing returns through the 18% interest rate offered.
- Participating in Secondary Auctions: Another viable strategy involves participating in secondary auctions that occur after the primary auctions in Florida. These auctions offer an opportunity to acquire tax liens at the standard 18% interest rate. Investors with a preference for purchasing liens post-auction or those seeking additional investment avenues can leverage these secondary auctions to expand their portfolio in Florida's tax lien market.
Case Studies of Successful Florida Tax Sale Investing
Successful tax sale investing in Florida comes down to the efficacy of your investment model. We’ve seen investors flourish with a number of approaches, and here are a few specific examples:
One of Tax Sale Resources’ clients uses the fast five approach in single-bidder counties. This method involves a high rate of quick redemption (usually within the first month or two) and avoids the steep competition of multi-bidder auctions. The ability to cycle through properties month by month helps minimize borrowing costs and avoids the TDA process.
On the deed side, we've seen several clients focus on vacant land in Florida with low assessed values. For example, one client researched a property with an assessed value of $2,000. Their real estate expertise clued them into the fact that the land would sell for about $35,000. So, the investor won the parcel with a bid of $3,000 and sold it immediately at a significant gain.
It's worth repeating that research is your golden ticket to success. Monitoring properties and auctions in multiple counties is impossible with one set of eyes - it amounts to hundreds or thousands of properties at once. However, with our tools, investors can sift through everything and find the best deals quickly.
Expanding Your Available Capital for Florida Tax Sale Purchases
Several years ago, Tax Sale Resources recognized that the most significant hurdle Florida investors face is capital constraints.
The lack of insurable title prevents tax sale investors from securing conventional financing to grow their businesses. For this reason, investors have trouble scaling even the most successful business models.
This is especially true in Florida, where a half million dollars of investment capital only helps you secure a few properties at a time.
To address this issue, we developed a financing solution for investors looking to grow. Investors can secure the finances they need to continue investing after acquiring a few properties. This way, you’re not stuck waiting for liens to redeem or a TDA process. There are no credit requirements, and funding can arrive in your account as quickly as two weeks after applying.
Additionally, our Accelerator program can provide up to $10 million to get your business going. We aim to enable investors to expand their portfolios and maintain momentum in their investment activities.
We firmly believe that tax deed investors play a vital role in revitalizing communities by transforming uninhabited properties into habitable homes. By providing access to capital, we aim to support investors in their efforts to contribute to community development on a broader scale.
Exit Strategies After the Purchase
For investors seeking exit strategies for their portfolios of tax liens or deeds, our company offers brokerage services to facilitate the sale of these assets to other investors. Here are some situations where secondary market sales are preferable:
Exit Strategies for Florida Tax Lien Investors
The secondary market for tax liens in Florida involves the sale of assets purchased by other investors at auction who can't or don't want to wait for their investments to mature. Reasons for this include liens taking longer to redeem than anticipated, pressing needs for immediate liquidity, or the failure to access financing.
Our brokerage services cater to investors with portfolios containing valuable assets.
While selling these portfolios doesn't guarantee the redemption of the full principal amount, it allows investors to exit their investments and recoup some value.
However, selling assets midway through the seven-year redemption period at a premium can be challenging due to the current cost of capital.
Investors may find more success selling portfolios just before the TDA stage because buyers can see the value right around the corner.
Exit Strategies for Florida Tax Deed Investors
Our broker services also extend to tax deeds in Florida.
A portfolio of tax deeds more closely resembles a conventional real estate portfolio. As a result, the key is to understand the value of your portfolio and find a buyer interested in the holdings.
Florida Tax Sale Insights for the Future
Let's delve into the current landscape of tax sale investing in Florida.
One trend is the shift of investment models to one of two poles: immediate redemption for the "fast five" or waiting for the seven-year limit to get 18% through the TDA process.
Most investors gravitate to one of these structures. That being said, too many investors with that approach can overcrowd the market.
In other words, overemphasizing these models creates more competition in the same space. The upside is that it leaves more room to develop creative niches outside the norm.
So, it's vital for investors to create their own secret sauce in florida tax sale investing.
Beyond this overarching trend, we observed an increase in the average winning bid in Florida in 2023.
The typical winning bid was the bare minimum of a quarter percent. However, this past year saw the average winning bid jump to one and a quarter percent. This departure suggests fewer investors are willing to bid down to the quarter-percent threshold and sacrifice earnings.
This shift doesn't mean the rates will jump to 10%, but they do reflect interest trends in the overall economy.
It's advisable to note that Pace loans are adding additional costs to more liens than before, highlighting the importance of due diligence before bidding on a property. Likewise, high-interest rates have made borrowing more expensive, so financing a purchase can be challenging.
Despite these fluctuations, Florida's tax sale landscape remains reliable and stable. This is partly due to the fact that there have been no significant changes in Florida statutes.
Recent legislative efforts aimed at standardizing bidding rules statewide have sparked discussions and debates within the investor community, but no legal changes have materialized. The key takeaway is to continue monitoring which counties are single-bidder, as these are more likely to fit your investment model.
Last to consider is the Tyler v. Hennepin case. While the case has caused ripples nationwide, the good news is Florida’s process already follows the ruling issued last year.
The Tyler v. Hennepin case highlighted a crucial principle: county governments cannot retain more funds than property owners owe in delinquent taxes. The underlying principle applies to every state: excess equity from the sale must be returned to the prior owner rather than kept by the government.
In Florida, the tax deed auction process aligns with this principle.
When a county sells a tax deed at auction, excess equity generated from competitive bidding is used to settle outstanding liens.
Then, any remaining equity is made available to the prior owner. This adherence to the Tyler v. Hennepin ruling creates stability for investors in Florida's tax sale market.
Legal Considerations Before Investing in Florida Tax Deeds or Florida Tax Liens
Speaking with an experienced tax sales attorney when investing in Florida is crucial. Remember, investors benefit from understanding which liens are extinguished during the TDA process.
Additionally, you won't have title insurance on any tax liens or tax deeds. That said, Tax Sale Resources isn't a team of attorneys.
So, working with a tax sales lawyer in Florida is vital for insight and success for your specific business model.
Florida Tax Sale Frequently Asked Questions
Is Florida a tax deed state?
Florida is a combined state, offering investors tax liens and tax deeds through county auctions.
How to purchase tax lien properties in Florida?
Investors can purchase tax liens in Florida by attending county auctions. Most counties hold their tax lien auctions online, increasing their availability.
Does a mortgage survive a tax deed sale in Florida?
Florida counties notify mortgage holders when processing tax deeds. If parties are adequately notified, the deed process eliminates mortgage loans. Unfortunately, the county's title search and notification can miss secondary mortgages. Therefore, careful research is essential when investing in tax deeds to uncover surviving mortgages.
Conclusion
The landscape of tax sale investing in Florida presents both opportunities and challenges. The keys to successful investing include:
- Understanding and leveraging proven models such as the Fast Five Model and targeting properties less likely to redeem quickly.
- Navigating high-competition, single-bidder auctions requires a unique approach, efficient research, and anticipating emerging trends.
- Consulting with an attorney to offset risks, such as hidden liens, CDD liens, and PACE liens.
- Perusing secondary auctions for quality liens that fell through the cracks.
Remember, Tax Sale Resources offers invaluable resources and solutions tailored to the specific needs of Florida tax sale investors.
From providing access to capital and brokerage services to offering comprehensive market analysis tools, we empower investors to maximize their returns and navigate the complexities of tax sale investing in Florida.
Armed with this knowledge, you can put your best foot forward in your journey to success in tax sale investing. To take the next step, subscribe to our platform, contact us for personalized assistance, or attend one of our webinars to gain further insights and strategies from industry experts.
