Tax sale investing is an exciting, and usually profitable means of investment. As it increases in popularity, there are some things that potential tax sale investors must be aware of to be successful.
Tax Sale Investing Is Not Real Estate Investing
When it comes to tax sales, all states are either tax deed or tax lien states. Florida is a tax lien state, meaning that tax sales auction off not property, but the lien on that property. In other words, the investor pays the government for the back taxes owed on the property. In exchange, the investor gains the right to collect that amount, plus interest and fees, from the owner of the property.
If the owner does not pay within a set amount of time, the investor can initiate a foreclosure and purchase a tax deed, which gives them rights to the property. It seems like a win-win scenario, but there are still reasons to be cautious.
Never Invest Sight Unseen
The ultimate goal when bidding on a tax sale is to find a property worth more than the taxes owed. If the property is worth less than the taxes, and the owner doesn’t pay off the lien, you will be stuck with a property that cannot recoup your investment.
Check the public record for tax assessments or any real estate information. Make sure to drive out to any properties you are interested in before the tax sale to see what shape they are in. Don’t use online maps to check out a property; they are often outdated and may not accurately represent the condition.
Know Your Rights
Not all liens are secured against the full bundle of property rights. Before bidding at a tax sale, study the listing and make any necessary inquiries to determine what rights you will be bidding on.
There could be instances where the tax lien is secured against only the sub-surface rights for example. This means that anything above ground would belong to someone else. Unless there are valuable mineral or oil deposits, those sub-surface rights probably won’t be worth more than the taxes owed.
There is no doubt that tax sale investment can be a lucrative endeavor. However, it can also require a lot of funds initially since most auctions require the full payment upfront. Contact the Balance Sheet for a consultation and find out how we can help you determine if you are financially ready to begin tax sale investing.