Question on Tax Liens
Can someone explain this?
Went to my first tax lien sale in Florida today. The way it works here is the amount owed is auctioned off with the winning bidder being the one who is willing to pay the taxes off on the spoand demand the lowest percentage return from the owner in the future. The after two years, the lien-holder can demand a sale and get the amount he paid plus his interest. The max interest is 18%, the min is 1/4%.
On many of the properties some professional bidders automatically bid 1/4%. They lost me on this. WHy would anyone spend 10, 20, or 30 thousand dollars to get a quarter percent per year simple interest. Most of the properties went for as low as 3-5 % simple interest. And these were being bought by the "pros."
What am I missing? Why would someone want investments with such low returns?
BudMan
Looks like to me that someone is sure trying to keep the little man out!!!
But I am just guessing of course.
Does anyone have any ideas as to what was seen at this sell and why they are taking little or nothing for their investments?
GO TO THE ONE IN MOBILE (2900) NEXT WEEK AND 29K IN JACKSONVILLE IS COMING UP TO--the answer is WHAT IF THEY DO NOT PAY-YOU OWN THE HOUSE FOR A SUPPER SMALL INVESTMENT-YOU SEE THE LOWER THE INTEREST THE LOWER THE EXPENSE TO THESE INVESTORS-so if they buy a $100k property for $1,000 and the estate (kids) do not pay the tax-he own a $100k property for $1,000---BINGO=SMART SMALL INVESTING!!!(AND WITH LITTLE RISK)
Ralph, that's not the case in Florida. If the taxes aren't paid, after 2 years the lien holder can force a sale by auction. He MAY get the property at that low price, but almost certainly will be outbid.
Any other thoughts?
D
Budaman: Had the same experience in our county last week. Had purchased several TLC's last year and was amazed then that the big $ folks were bidding down to 4%. This years TLC sale made me nostalgic for last year as the bigger financial houses were bidding @ 1/4%, frustrating even the 4%ers from last year (so there was some entertainment value to the experience). Like you I cannot fathom why 1/4% is attractive to these institutional buyers when a 91 day Tbill is paying 1.1%. They were bid by 20 year olds who knew they were just playing with someone else's money. And no, these financial institutions were not looking to pick up the property by forcing it to auction. Here in FL you have to wait 2 years to force such a sale with a TLC.
Any other experienced folk out there with any ideas on why 1/4% is attractive?
BudaMan,
I attended the Dade County (Florida) auction today ... is that the one that you have been attending? I saw what you were talking about (pros bidding at 0.25%)... This is the first time that I have attended one of these auctions, and I totally do not understand why everyone is bidding at such a low interest rate. I feel totally lost and like I'm missing the concept...
Check into state statute and figure a blended rate!?!
NecktieKid,
Thanks for your answer. But, what do you mean exactly by blended rate?
When is the auction held for taxes in jacksonville?
Florida actually guarantees a 5% return. So even though liens get bid down to 1/4%, when you pay the bill the clerk will tell you that your minimum is 5%. The cool thing is that the 5% is guaranteed the next day. So if you bid down a lien to 1/4% and then go pay your bill, you first find out that you are still getting 5%. If the property owner pays the property tax bill the following week, you're guaranteed the 5% on your lien. Pretty cool (does that explain the competition?).
Thanks Dynamic. That helps. But then why doesn't the bidding automatically go from 5.25% to .25% ?? Seems like there's no reason to ever bid between .25 and 5%. Also, if you cannot force sale until 2 years, even if you get 5% after 2 years, that kind of sucks. Why would these big investors take such risks?
Budaman
Hey BudaMan,
Many people don't know about the 5% minimum so they bid down and thus weed out the competiton to below 5%. Large corporations are not interested in going that low, they're not interested in property but in interest anyway. The reason why 5% is so cool in FL is because it's due immediately (no waiting period). So if you pay the tax lien bill at 11:00 a.m. on a Monday and the homeowner comes and pays his or her bill that afternoon, s/he has to pay 5% on the past due amount.
The interest rate really jumps down after 2.5% b/c at 1/4% interest rate annual, considering a foreclosure withing 2 years you still make 2.5% annually? See what I mean? Also, tax liens are not a huge risk at all. A lot of these large companies research ahead of time to see which neighborhoods produce safe investments. When you are investing 2-3 million dollars, economies of scale keep your expenses down compared to 2.5% annual interest rate (at worst at most). Call up the county and ask for their statistics on how fast certain priced certificates are redeemed. Sometimes they will have them available. Then you can figure out the real annual percentage rate that these companies are getting in that county. Compared to investments with the same amount of security, I am sure it is quite more
TravisByrd,
I'm curious. We know that due to the past few years in the equities market and the 45 year lows in the bond market, investors are looking for alternative investments, which have made tax lien investing competitive.
What would you feel would be a good return on investment per year?
Necktie
I am not sure if my post was worded quite correctly. With tax liens, a worst case scenario of 2.5% annual return in Florida is a great investment today. This is shown in the amount of individual investors who have hired a small staff of college age kids to bid for them at these auctions. I dont think there is any substitute for the variety of options that tax lien investors enjoy. On average, I think a tax lien investor should average ATLEAST 7% annual return at these low rates. Then again, I wouldnt consider myself an expert on this. Not even close. Just from my experience in purchasing tax liens and my research I have done on other state laws have I made these conclusions. And I also think that a return of 10-12% right now is possible. If you want to talk to me more about these ideas, email me at **Please See My Profile** I check my email every day or so.
Actually just send me a private message. The email in my profile isnt the one that gets checked.
NecktieKid,
I think a 6 to 8% return is ok in this market. That's not for every state, and not only for the initial lien. Higher returns are obtainable, but in niche markets, with liens less than $10,000. Just my experience right now.
TravisByrd,
Checked your profile, and cannot send a private message.
You should be able to. Other people have.
THe Jacksonville sale is the week before the 1st of June usually. This year there were tons of 1/4% bidders. Those people want the properties. When they get the properties, they are just paying themselves back, so the interest rate is irrelevant. THey hold for the 2 years, hope the people don't pay off the certificates, and force it to auction. Worst case they get the 5% it really is, and that's 5% a year, not total. Best case they had their $ held up for 2 years in order to get the property forced to sale, then they buy it at auction for the taxes due, which then in turn get paid right back to them as the certificate holders... It really can be lucrative if you work it correctly.
[addsig]
StarBelly, the minimum interest rate received is over the term that the tax lien stands, it doesnt renew every year.
Is it possible that representatives from companies that have liens on these properties as well could be the ones showing up and bidding for these awful rates?
I mean, if I were a bank and I saw someone who I lent 500k to on a property and then saw it going up for tax auction, I'd pay a few thousand dollars to make sure that it didn't get a tax foreclosure later. I certainly wouldn't care about the return on my interest in that case.
What do you guys think?