Tax sales are a unique way to invest in real estate. For a beginner, it can be not very safe. Tax sales occur year-round. Hundreds of properties across Canada go up for sale. Some are amazing investments, but others aren’t. Knowing what to look for, how to bid, how much to bid, and how to ultimately make money from a tax sale are all lessons and knowledge that come with time.
Here’s some helpful information as you attend your first tax sale.
Buying a Tax Sale Property
After two or more years of unpaid property taxes, its municipality may reclaim it from the homeowner, wipe away the mortgage, and sell off the house or land to recoup the taxes owed. When you invest in a tax-sale property, you pay the associated fees and become the new homeowner. To be declared a tax sale property owner, however, one must be the highest bidder and outbid the competition.
Why Tax Sale Homes Are Advantageous
Tax sales homes are sold at a fraction of their assessed value. This means you may pay anywhere from 10-50% less for a home than you would in a traditional real estate sale. As an investor, this lets you buy homes cheaply and then turn them into mechanisms for profit, such as renting, flipping, or holding them for long-term appreciation. For some, tax sales are an income stream and a way to diversify their investment portfolio.
Research Tax Sales Listings Carefully
Tax sales listings are available online. However, the information they provide is limited. Even so, please review them carefully as a starting point. They can be found on your municipality’s website. Examine their location, neighbourhood, any photos provided, and other details. Scan public databases for more information. Run a title search. Please do your due diligence to determine as much as possible about a tax sale home before bidding.
Risks of a Tax Sale Property
We strongly advocate researching a tax sale home before bidding because not every listing is a winner. Tax delinquent properties are sold as-is and sight unseen. The prior homeowner may require eviction. There could be claims on a property, such as Crown interests. An environmental cleanup could be required, or property damage could be repaired immediately. The more you know about a tax sale home, the closer you are to knowing if it’s something you want to bid on or move on from.
Bid on a Tax Sale Property
There are two ways tax sales are held. The public tender involves submitting a bid by mail. An investor gets to put in a single bid this way, and they must make it their best offer. A public auction is typically held in person, where parties can bid multiple bids to outbid one another. Most municipalities use the public tender system for tax sales. When researching tax sales in your area, understand the rules of bidding and what is expected of a bidder.
Financing a Tax Sale Comes From You
An investor cannot get a mortgage, loan, or line of credit specifically for a tax sale. Financing must come from one’s own pockets. This may involve going into your savings, credit, existing loans, and more. Set your budget wisely. Have a maximum bid amount and never go over it. Furthermore, additional costs that may be present after a tax sale, such as repairs that may be required and the legal costs of evicting an existing tenant if they refuse to leave, should be considered.
Payment Is Expected Immediately After a Tax Sale
If you are declared the highest bidder for a tax sale, the amount you bid is owed immediately. Different municipalities work differently, with some waiting up to 14 days following a tax sale, but many require payment immediately. This means bringing the funds in cash, certified cheques, or bank drafts. Verify beforehand what payment methods are accepted. If you cannot make payment, you may be required to forfeit your right to the tax sale property and lose your deposit.
The Journey Towards Property Ownership
After you have paid the municipality for a tax sale home, until the paperwork is official, you have to wait. A redemption period is often instituted, allowing property owners a short timeline to reclaim their property after a tax sale by paying down the debts owed. Only after this redemption period has passed can you assume ownership. While you can earn interest on what you put down during this period, wait to pursue anything with the property until it’s yours.
