Every day we hear more and more stories about people that jump into the wild world of investing in FL foreclosures without any clue as to what they are doing. Then, after the depth of their folly overwhelms them they start to blame everyone else for their woes.
Bottom Line: Investing In Florida Foreclosures Is NOT for the Novice or Faint of Heart!
While the gurus would have you believe that flipping these vacant homes in the midst of the worst housing market our generation will ever know is not all that complicated, but believe me…it is. In fact, the current state of affairs has been so hard on real estate professionals that Realtors are hanging up their licenses left and right because they have to find other jobs to keep the bills paid.
FL foreclosures come in many flavors. The traditional varieties include REO properties, tax foreclosures sales, auctions, online auctions. Just because they have “real estate” as the common thread among them does not mean that they’re all the same. They are actually all very different animals and failure to comprehend this can lead to some very bad, very serious consequences.
Let’s take the example of William Anderson. William is probably a very nice guy, but he found himself in a foreclosure investing disaster that ended up with him bidding on line for what he thought was the deed to a condo he felt was worth more than $300,000.
After beating out his competition (another clueless newbie investor that didn’t know what she was doing either) he discovered that not only did he not own the property, but he only won the right to pay off $20,000 in association dues. Considering the fact that he drove the bidding up to $86,001 I guess he should be able to more than cover that.
Now I know that we have a lot of people that know the in’s and out’s of investing in just about every different real estate niche known to man, but for those of you who don’t, let me give you a quick overview of how some of these auctions work.
Cities, townships, and other municipalities depend heavily on property taxes to keep their local government running. When people don’t pay their property taxes, this can cause a bit of an issue in keeping the bills paid on time. This is not a major issue for the most part, but when hundreds of thousands of people get laid off each month, it can soon balloon into a real problem.
The reason is that in most states, people can pay their property taxes a number of years after they are due with the only penalty being the piling up of late fees in addition to the original amount owed. The traditional attempt by the cities to combat this revenue gap is to “sell” the tax debt to investors in the form of tax deed or tax liens. If the homeowner pay the delinquent bill, the investor gets a healthy return on his investment, the city got their money on time to keep city hall open, and the homeowner got their own self-appointed extension so that they could pay their taxes at a more convenient time. Win-win, right?
On the other hand, if the homeowner NEVER pays the tax bill, you count out a few years and in the end the home will go to the investor, lock, stock, barrel!
The really cool part about this is that tax liens trump everything else (even a 1st mortgage!) which means that all junior liens are wiped away for FL foreclosures that are lost because of back taxes.
So this sounds like a REAL good deal, right? Pay the back taxes on a house and if the owner doesn’t pay up, you get yourself a property for pennies on the dollar. Cool. Of course you can guess that there are plenty of people trying to sell you a “get rich in real estate” tax lien investing course or a tax deed investing course.
Now the real kicker in William’s story is the fact that the municipalities have extended the whole “tax auction” thing to actual homeowners association dues! Every area is different, but I’m guessing these back payments were NOT taxes, but were setup to cover some cost the cities required be addressed when the condo complex was built. Now the city is collecting on these back association dues that are not paid in a similar fashion as on back taxes…but with a twist.
These auctions are ONLINE! Now we all know eBay has been around for a while, so people should be somewhat familiar with the concept of online auctions, right? Wrong.
Rule #1 For Bidding on Real Estate Online – You Never Bid Online
Rule #2 For Bidding on Real Estate Online – You NEVER Bid Online!
Seriously. Especially if you are likely to get caught up in a bidding frenzy while trying to actually make a profit investing in FL foreclosures these days.
I think the craziest thing about this is that I’d be willing to bet the past due TAXES take priority over past association dues. What do you think the chances are that if the association dues are running late right now that the taxes are ALSO a bit behind?
Can you imagine dumping all that money to buy an Association Dues lien only to have it wiped out by a superior tax lien?
So listen up. I’m not trying to be the dream killer here. I’m really not. But before you run amok doing crazy things like William did, make sure you make the effort to spend a little time (and usually a fair amount of money) securing a good education in what you are trying to do before you start buying Florida foreclosure properties.
I want you to realize that most FL foreclosures are nothing more than fancy money pits and getting involved in them is akin to striking a match to a stack of $100 bills and tossing them out the window while you drive down the highway at 70 m.p.h. on your way to work. That type of thing just doesn’t make sense and neither does jumping into a complex business that has been oversold as being simple!
It is still possible to make a lot of money investing in foreclosures. Game changer money. Keeping that in mind, we have to be a bit more smart about how we approach this business. Gone are the days when double-digit increases in property values would cover a multitude of sins. Underestimating repairs, not buying low enough, failure to estimate the time required to buy/fix/market the property for sale are all fortune-killers these days…don’t let anyone tell you otherwise.
Let me give you some quick advice if you still want to make it investing in FL foreclosures in this day and age. Build relationships! Start by finding a good Realtor. An agent that can get you access to the MLS through a administrative assistant account or whatever. Next get yourself a “free” mentor. Free mentors are the successful investors at your local real estate investor association who are making money right now regardless off market conditions. Find those people, take them to lunch, and start building a relationship.
Then get bold and start imposing on their time. I’m serious. Ask them if you can tag along when they go to look at properties. Ask them if you can tag along when they manage their rehab crews. Ask them if you can tag along when they buy their supplies from whatever source they use. It may seem a little weird at first, but many people find that they enjoy sharing their knowledge when asked.
This type of informal education will pump you full of the kind of real-world knowledge you need in order to succeed at the business of investing in FL foreclosures. Of course you could spurn my advice and just start buying up whatever “seems” to be a good deal at the drop of a hat, but I strongly recommend against it. Such actions tend not to bode well for your financial health.