Another type of real estate investing
It’s been a long slow slog for those looking for a decent return on their investments, but as every investor knows, when the deity of finance closes one window he frequently opens another.
When I first moved to Florida, I had no idea what a tax certificate was and that it could become a vehicle for investment. Since the Florida real estate market was escalating at an unheard of pace, you didn’t hear too much about foreclosures or homeowners delinquent on their property taxes. But this is a whole new world, and foreclosures go hand in hand with delinquent taxes.
Real estate taxes in the state of Florida are assessed for a calendar year and are payable Nov. 1 of that year. The due date for annual property taxes is on or before March 3 of the following year. If the taxes are delinquent on April 1, Florida Statutes require the tax collector to annually on or before June 1st, conduct a sale of tax certificates on all property on which the taxes are delinquent for the preceding year.
A tax certificate represents the outstanding taxes on the property, and is sold in an effort to recoup delinquent taxes. In exchange for purchasing the tax lien certificate, the county offers investors interest on the certificates and guarantee that the tax lien certificates will be paid off within a prescribed length of time.
Manatee County offers tax certificates on unpaid property taxes to investors in an on line bidding process. The investor who submits the lowest interest rate wins the bid for a certificate and subsequently pays the outstanding taxes on the property. The interest rate that was accepted at the auction is paid to the holder of the tax certificate, either when the property owner pays the taxes or the property is sold.
On June 1, the auction of tax certificates conducted by Manatee County was one of the most successful ever. Ninety-two percent of the delinquent tax certificates were sold online with the expectation that approximately another 2 percent would be sold when the certificates go on sale on a first come, first served basis.
And here’s why so many investors are jumping on the tax certificate bandwagon – the average interest being paid on the tax certificates that were bid on is about 7.75 percent. However, if you want to take a chance and purchase one of the unsold certificates, it will pay a whopping 18 percent rate, which is the maximum the county will pay. The tax certificates are held for vary lengths of time based on when and who pays the outstanding taxes. If a homeowner declares bankruptcy, the certificate could be held several years, however, a certificate holder could force a sale within two years to recoup his investment. In the meantime, the interest rate being paid on certificates being held is better than most investors can hope for from other investments in this market.
If this is an investment window that you might be interested in going through, watch for next year’s tax certificate sale conducted on June 1. www.taxcollector.com is the place to get information. Something tells me that the 7,263 delinquent tax certificates offered this year is a number that probably won’t change too much between now and then, but we can always hope.