How to Invest in Tax Certificates - Deal Collab Blog

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How to Invest in Tax Certificates

What are Tax Certificates?

Tax certificates are real estate investment instruments issued by a county on properties with unpaid taxes. When a property owner does not pay their taxes, the county issues these tax certificates to investors in order to collect the needed cash to pay for county services. For putting up the cash investors are paid interest on their investment for purchasing these certificates. Tax certificates can be beneficial for all parties involved; the county get the cash they need, an investor can earn a return on their investment, and property owners are allowed some time to pay their taxes, it’s like an automatic loan for property owners. In the event the taxes are not paid in an allotted time the property owner may lose their property.

Return on Tax Certificates

In the state of Florida, investors can earn up to 18 percent per year on a certificate. Certificates are normally sold at an online auction where the bidding starts at the maximum interest that can be earned on a certificate. If multiple investors bid on a certificate, the rate awarded gets bid down in quarter percent increments. In some cases, certificates can be as low as zero percent, however if a certificate gets bid from 0.25 to 2.75% then the default rate awarded on that certificate is 3 percent in Palm Beach County.

How to participate

In Palm Beach County, Florida, tax certificate auctions are run by Real Auction at this website https://palmbeachfl.realtaxlien.com on behalf of the county. To bid on tax certificates you must register and place a deposit of ten percent of total value of certificate you want to buy or a minimum deposit of $5,000. After placing a deposit on file, you can now bid on certificates. After you are awarded your wining certificates, you are now required to make full payment for the certificates you have won within 48 hours, or get a refund if your deposit covers all your purchases.

When Do I get paid?

After you are awarded your wining certificates, you will begin to earn interest the following month. You can expect to receive full re-payment on your investment when the property owner pays their taxes anywhere up to two year of the certificate date. In the event the home owner does not pay their taxes in two years, an investor can foreclose by applying for a Tax Deed on the property in order to get back all their full investment. When this happens, the property goes to an auction. If the property is not sold at the auction you are awarded the property. It is important to note that tax certificates are enforceable up to seven years from issue date, so if you did not apply for a Tax Deed at the two year mark, you have an additional five more years to do so.

Is my Investment Secure

With tax certificates the investment is secured by the property. Tax certificates are actually a lien on a real estate property, the real estate serve as a collateral for the loan. Tax certificates are even more favorable as an investment because they are in first lien position superseding all other liens on the property.

Precautions to take while Investing?

There does exist some precautions to make when investing in tax certificates. There are low risk certificates and high risk certificates listed for sale, with a little due diligence on your part you can avoid these high-risk certificates. Some high-risk certificates to avoid are listed below.

  • High face value to property value certificate, these are certificates where the face value of all outstanding certificates is close to or over the value of the property.
  • Irregular/Unbuildable lots, certificates on irregular shaped lots and unbuildable lots are not worth bidding on as they are not likely to be paid back.
  • Land-locked properties, these properties are legally not readily accessible. In the future though these can have some value. Government Properties, it is good to avoid certificate on government, church, and nonprofit organizations as they are not required to pay taxes. Surprisingly they do show up with tax certificates.
  • Toxic Properties, avoid properties that may have environmental issues, these are typically found on industrial properties.

Tax certificates provide a way for investors to earn a decent return on their investment while enjoying the protection by real estate as the security. With some due diligence on your part you can pick the best certificates to invest in and enjoy a piece of mind knowing all your certificates will be repaid.

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