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October 17, 2013
Guest article by Sandra Edmond:
Is your money sitting at the bank making less than 2%? Meanwhile people are making 18-50% in government backed Tax Certificates. Certificates represent a first position lien on real estate for delinquent taxes. If those taxes are not paid the property can go to a tax deed auction. The tax deed sale is my favorite, and it’s what I’ve been doing since 2004. Both are great investment vehicles for your self-directed IRA. Here are some steps that helped me net a FANTASTIC return on my very first tax deed:
STEP 1: Are you in a Tax Deed or Tax Lien State? Tax Deed states auction off the real estate when property owners become delinquent. A Tax Lien state sells tax certificates to investors when homeowners become delinquent. Once the homeowner pays the taxes the investor is paid off their investment plus interest. Florida is a Tax Deed and a Tax Lien state. I purchased my first Tax Deed in Florida on a vacant commercial lot valued at $60,000 for $12,000. The money came from my mother’s 401k account.
STEP 2: Contact the person in charge of Tax Deed sales. In Florida, it’s the County’s Clerk or Comptroller. Ask how they conduct their tax sales and what happens if nobody bids on the tax deed. That’s what happened to my first tax deed. It then went on a list of properties you can buy over the counter for the back taxes. You should always do your due diligence before purchasing.
STEP 3: Study the property’s file. You will sometimes find a title search in the tax deed file where you may also find information on any other outstanding liens. A mortgage would get wiped out at the auction, but liens, like code enforcement, can stick to the property. You should always visit the property as well.
STEP 4: Once you feel comfortable with the information you have, you can move forward. The county will give you a final payoff amount to purchase it. Often times you are buying at 20-50% of market value. Let’s say you’d also like to go to the auction as well as buy from the list.
Step 5: Find out when the next auction is, get a list of properties being auctioned and do the same due diligence as above. You should find out the auction rules. Most auctions require payment within 24 hours in certified funds.
Step 6: Market your property. If you want to get title insurance, you’ll have to go through a legal process called a quiet title. We waited until we had a buyer before we started our quiet title. We sold the lot for $49,000 making about $30,000 in profit.
Now that you’ve learned a little more about one of the alternative assets you can invest in through a self-directed IRA, you’re one step closer to making a better return on your money.
Sandra, aka the “Queen of Tax Deeds,” has been recognized in the Orlando Business Journal as a tax deed expert. She is a licensed real estate agent, graduated from the University of Central Florida and is currently President of Central Florida Realty Investors. Her website has links to her very informative YouTube channel. You can reach her at [email protected] or 407-310-4007.