Tax-delinquent properties are an investment opportunity and a pathway toward affordable homeownership for everyday Canadians. Municipalities offer them in tax sales several times a year and provide them to the highest bidder at public auction or public tender. Tax-delinquent properties are sold off for significantly less than their assessed values, allowing municipalities to recoup property taxes.
Here are some tips and tricks for investors or bidders to navigate tax sales.
Approach Strategically
Take out emotion. Always go by data and research. Carefully examine every tax sale listing, research tax delinquent properties, and bid in line with data and numbers. No emotion.
Set Maximum Bid
Determine a property’s market value. Set a maximum bid amount based on comparable sales, valuations, and profit margin estimates.
Bid 10% Under Your Best Number
Wherever the top of your budget is, your maximum bid amount should be 10 percent less. Should bidding exceed your maximum bid amount, let it go. Never go above your maximum bid amount or risk emotional overspending.
Budget Knowing Of Additional Costs
Liens on a tax-delinquent property, necessary repairs, legal fees, and other costs may or may not come into play. Do not overlook these costs when budgeting for a tax sale. Set aside funds to cover these potential expenses.
Use Only Your Money
When attending tax sales, you must either submit a required deposit or show up with accessible funds. Use your own money. Do not finance using a lender. Too much can go wrong with a tax sale. Should it, and if you’re financing as a borrower, you put yourself at risk of debt.
Accept That There’s Risk
There’s a risk to any real estate purchase, and tax-delinquent properties are included. Not every home will generate a massive return, but some will. Consider your strategic approach to bidding on tax-delinquent properties and what you want to get out of it.
Attend an Auction Or Public Tender
If the tax sale is by auction, attend one before you bid. Check in to see how they work, what the environment is like, and what opportunities may exist. If it’s by public tender, consider submitting a low bid first to understand better what’s entailed in making an offer.
Review Every Listing
Access public tax sale listings and review every tax-delinquent property using your strategic approach. Focus on properties that match your investment goals, whether that is to find a home to live in, an investment property, a rental, or another form of real estate.
Research Local Tax Sale Laws
Each municipality has unique laws that guide tax sales. They have their own rules for redemption periods and bidding processes. Read up and study before you come to make your first bid.
Network with Other Tax Sale Bidders
Contact other tax sale bidders, whether they are local or not. As a beginner, you can learn a lot of advanced strategies that only come with experience—network with tax sales experts.
Assess Location and Neighborhood
Assess a tax-delinquent property’s location and neighbourhood. Even if the property is somewhat damaged or may not be appealing, consider homes and land with potential and resale value.
Research Public Records
Look at the public records attached to your tax-delinquent property. Run a title search to see what, if any, liens are attached. See what you can find on social media and search based on the property’s address. This is data and insights into how much a given tax-sale home is worth.
Evaluate External Property Conditions
Visit the tax-delinquent property you want to bid on. Assess its physical condition from a public space. Look for any obvious structural issues, environmental hazards, vandalism, and other indications of value and care or lack thereof.
Liens and Encumbrances Matter
When you check for liens and encumbrances, these can complicate the transfer of ownership. For the most part, investors will want to avoid overly complex tax-delinquent property situations. If the property is particularly valuable, you should proceed regardless.
Know the Redemption Period Timeline
If you want property ownership to transfer, you must adhere to redemption periods. This means you cannot yield much return until after this timeline has passed. Financially, be prepared to sit on a tax-delinquent property until it is yours.
Consider Properties Outside Your Locality
If there are no tax-delinquent properties in your area that you want to bid on, look at our regions in and outside the province. There are tax sales in every province in Canada. Each market has its advantages. The ideal tax-sale property for you may be just a region away. It costs nothing to look at.
