What to Know Before Investing in a Tax Sale

Larimer County Assessor Bob Overbeck also wants Larimer County property owners to know about assistance from the Larimer County Bar Association

 

 

Buying properties at tax sale is a trend in every municipality across Canada. Each municipality has annual, bi-annual, or quarterly tax sales. They put up for grabs properties they have taken from the prior owner for not paying property taxes. The result is tax sale homes, aka properties sold at a fraction of their market value so that municipalities can receive the property taxes owed to them. 

Here is what to know before investing in a tax sale.

 

What a Tax Sales Property Looks Like

A tax sales property can be anything, i.e. a detached or semi-detached house, townhouse, condo, empty lot, vacant land, rural land, or anything. A tax sale home can also look like anything, though most are often collected from absentee owners, owners who have inherited the property, or homeowners who have faced financial hardships. In most cases, a tax-sale home will require repairs.

 

Why Tax Sale Homes Are Discounted

Tax sale homes can be purchased at a discount because a municipality wants the property off its hands as quickly as possible. They want the property taxes, fees owed, and ownership to revert to another party. This means properties with a minimum bid amount of sometimes 30% or less of their assessed value.

 

Tax Sale Houses Are Sold As-Is

You are not entitled to a home inspection before bidding on a tax sale house. They are sold as-is without much information on precisely what you’re getting. What you can do, though, is examine a tax sale house from public property. Inspect it to identify its investment viability and if there are immediately visible issues that could impact its value.

 

Tax Sale Investments Can Be Highly Profitable

One can earn a lot of profit from a tax sale home if they have put their due diligence into researching and figuring out the best bid. Many tax sale investors buy properties at a discount, gut the interior, renovate them, and then resell them for high returns. In some cases, you may decide to turn yours into a rental. 

 

Have a Tax Sale Bidding Budget

Have a top limit on your tax sale bidding. Determine the maximum price you will pay for tax sale property. If you do not have a budget and do not come prepared knowing how much your bid is truly worth, you may overbid and spend too much. Carefully explore the numbers and define your budget.

 

Tax Sale Investing Carries Risk

Not all tax sales are good investments. Many are not. Research any tax sale listing that appeals to you because the risks are real. There could be any legal issues associated with a house, including liens or claims you weren’t aware of or things you discover the first time you walk through the place. Be ready for the risks.

 

There Are Listings Year-Round

There is no tax sale season. Tax sales come up at all times of the year by different municipalities. If you don’t find a listing this time, look at neighbouring municipalities for another tax sale or wait until your local area’s throwing their next sale. The same can be said if you aren’t the highest bidder. Invest wisely.

 

Tax Sale Investing: Liens And Deeds

There are two types of tax sale investing, and it’s key to know which one your municipality offers. Each municipality has rules for administering a tax sale and the expectations involved.

Tax lien sales are when an investor buys the right to collect unpaid taxes plus interest. The property owner retains ownership while you pay off the taxes owing, and then the property owner pays you what you owe in fees, or you move to take ownership.

Tax deed sales occur when the investor acquires the property title outright, bypassing any interaction with the previous owner. Please note that a tax deed sale may involve a grace period or redemption period, allowing the prior owner one last chance to pay off their taxes before ownership is transferred.

 

Tax Sale By Auction or Public Tender

Tax sales can also be divided between auction and public tender. Many tax sales are held by public tender, which permits bidders to mail in their best bid. It’s one bid only. Public auctions are a little more heated, sometimes conducted online or through a sealed bidding process. Understand the format of your tax sale as well as the rules.

 

Come with the Money in Hand

There are very few financing options for tax sale investing. No lender will grant you a mortgage for a tax-sale property. Most tax sales require immediate payment. Secured financing is required. Personal savings accounts, lines of credit, personal loans, maxing out credit cards, and other means of obtaining the funds are all acceptable.

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