Tax Lien Investing in Florida: Idle vs Active

by Erin Bates, Senior Tax Lien Advisor

For investors that are just getting started with tax lien investing in Florida, it’s important to understand the two different investing types: Active vs Idle investing. Idle investing is best suited for those are more passive in their investing goals. For those that are interested in a more aggressive approach and are looking to acquire property, structuring your investment strategy with an active mindset is essential.

Active Investing Strategy

Every investor is automatically an “idle” investor for about 4-6 weeks until the certificates are completely transferred into their name. Once this is done the investor can then become “active” by filing a Tax Deed Application (TDA).

Two things happen when the TDA is filed:

  1. You’ve now pushed the property into the foreclosure process.
  2. You’ve bought out all the subsequent back taxes owed when filing the TDA. This will trigger an 18% annual interest on the full amount invested. Pushing the property into foreclosure by buying out all the back taxes on the property will expedite the process.

It typically takes about six months on average for redemption or property acquisition to occur. Who doesn’t like a bigger return and to have the chance to acquire the property for just acquisition cost of the back taxes?

Once the TDA has been filed, the county will reach out to the property owner via certified letter to inform them that they have 30-60 days to pay back the delinquent taxes, plus the 18% annual interest that accrued. If they don’t comply with this 30-60 day rule, the county will then reach out to the primary lien holder to inform them of what day the property is scheduled to go to the Tax Deed Auction.

There are 67 different counties in the state of Florida and each county holds their own auction. Florida’s auction process is unique because they also offer a live online auction. This means that investment opportunities are open to investors worldwide with the potential to outbid any investor that’s at the county auction.

If the property sells at auction, the investor will get redeemed for the amount they invested plus the 18% annual interest that accrued since the day the TDA was filed. If the property doesn’t sell at the auction, the investor will acquire the property! Remember that once you acquire the property you’re now responsible to pay the property taxes moving forward, so make sure you have a tax lien exit strategy in place.

Idle Investing Strategy

If an active investing strategy isn’t the approach you’re looking for, taking the idle approach is your next option. One thing to remember with idle investing is that it’s a slower process with a smaller return and you have no chance to acquire property. The interest that was established in the primary market will accrue on the face value of the certificate only.

While waiting on redemption, one of two things could happen:

  1. The property owner will pay off some if not all the back taxes. If they pay off your certificate, you would then how be redeemed on the face value amount.
  2. Another investor will file TDA. When they file the TDA they’re buying out all the back taxes owed including your certificate. Only one investor may file TDA per property.

Both methods of redemption are unprompted. It’s impossible to predict when or if the property owner will pay the back taxes and we don’t know when or if another idle investor will go active. Therefore, idle investing takes more time to see returns, as it could take months to years for the tax lien certificate to redeem.

One method of investing is not better than the other. Choosing what type of investment strategy you want to take solely depends on the type of investor that you want to be. Do you want to acquire property to wholesale, fix and flip, or resell? Or do you want to collect interest over longer periods of time until redemption occurs? This part is up to you!