I skimmed through a book called
Investing in Real Estate, 7th Edition, by Gary W. Eldred, PhD,
and I came across this section:
“Are Tax Liens and Tax Deeds an Easy
Way to Make Big Profits?
If you believe that you can easily earn
big profits through tax liens or tax deeds, you’ve been watching
too many infomercials. You can earn profits in this arena only if you
work hard to research markets, research properties, and research
legal procedures. Then bid selectively when your research indicates a
satisfactory trade-off between risk and reward. For a realistic view
of tax liens and tax deeds and a state-by-state listing of legal
procedures, see Profit by Investing in Real Estate Tax Liens by Larry
Loftis (Dearborn, 2005).”
I have not read the Loftis book yet,
but I may pick it up if I can get it cheap. I bet a lot has changed
in the seven years since it was written, and it is probably even
harder to make money in tax liens now. Why the downer attitude? As
promised, here is the skinny on the Florida 5% rule:
First, from the Florida statutes:
197.472
Redemption of tax certificates.--
(2) When a tax
certificate is redeemed and the interest earned on the tax
certificate is less than 5 percent of the face amount of the
certificate, a mandatory charge of 5 percent shall be levied upon the
tax certificate. The person redeeming the tax certificate shall pay
the interest rate due on the certificate or the 5-percent mandatory
charge, whichever is greater. This subsection applies to all
county-held tax certificates and all individual tax certificates
except those with an interest rate bid of zero percent
So, am I happy with my 0.25% winning
bids in Florida? With a redemption time of two years in Florida, you
could get a paltry return of 5% over 2 years. Calling this a 2.5%
annual return would be exaggerating slightly as this interest is not
compounded. As you cannot take control of a property in Florida, you
could get stuck with this return. This is certainly not the road to
getting rich quick.
There is a bright side, though. If the
lien is redeemed in under a year, your returns will looked pretty
juicy. A lien redeemed just a few days after you purchase it will
still pay the full 5%!!! Say you get your money back with the 5%
penalty in one month; you could claim you made a 60% annual return.
Another positive spin you could put on this is that a 5% return over
two years is still a lot more than you can make on a CD right now.
