Tax lien investing is possible in many states, but today we’re discussing Florida. There’s a reason why large investors are taking advantage of investing in Florida- we’re here to tell you why. There are two types of investing: active or idle. If you’re looking to collect interest, we recommend the idle approach. On the other hand, active investing tends to focus on property acquisition. There’s no right or wrong approach, but it’s important to decide what best fits your investing goals.
Active Tax Lien Investing
Every investor starts as an idle investor. It takes about 4-6 weeks for the certificates to transfer into your name. However, you can file for a tax deed application (TDA) once the transfer is complete. This means you are now an active investor.
The subsequent back taxes must be paid when filing the tax deed application. When this is complete, the property will be pushed into foreclosure. This approach is attractive to real estate investors because it is possible to acquire the property for just the cost of the back taxes.
After the completion of the TDA, the county informs the property owner that they have 30-60 days to pay the delinquent taxes. If they don’t comply, the county will inform the property owner that the certificate is scheduled for auction.
If the property sells at auction, the investor will be redeemed for their investment plus interest. When the property doesn’t sell, the investor will acquire the property. This is where developing an exit strategy is important. If you acquire a property, what are you going to do with it? Fix and flip, wholesale, rent? Taking the active approach without anticipating all possible outcomes could lead to a failed investment.
Idle Tax Lien Investing
If you’re not looking to acquire property, try taking the idle approach. It’s important to remember that this strategy comes with slower and smaller returns and property acquisition is typically not possible.
Redemption can happen in two separate forms. Both result in the investor getting their money back plus interest. The certificate can be redeemed if the property owner pays off the back taxes.
If the property owner does not pay the taxes, redemption can occur if another investor files a TDA. Like previously mentioned, the active investor has to pay off all other certificates to acquire the property.
Is One Better Than The Other?
The simple answer is no. Both methods of redemption are beneficial, but they largely depend on your strategy. If you’re looking to acquire property or expedite returns, the active approach is best. If collecting interest over long periods is your strategy, then taking the idle route is ideal. It’s important to know what your investing goals are before investing in tax liens.