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Investing in tax sale homes provides a pathway to homeownership, an investment portfolio in real estate, and more. Tax sales occur yearly, with hundreds of properties across Canada up for grabs. While there's much to learn about tax sale investing, every bid you make or property you chase will be a learning experience.
Here are some tips for investing in tax delinquent properties.
Ontario publishes a weekly newsletter called the Ontario Gazette, which lists tax sales. However, the details are limited. A much better place to find listings is through a third-party site curating municipal tax sales. It goes the extra mile by providing details, such as a map of the land, the assessed value of the property, and other details.
Many municipalities will scale down or stop seizing properties over the winter. This is why you will find far fewer tax delinquent property listings from December to February. That said, come spring, you will find a backlog of properties for sale. This may be where you want to look for the best deals.
Over 90% of tax delinquent properties in Ontario are sold publicly rather than by auction. Public tender is where bids are submitted by mail, with all forms completed and a deposit included. You aren't aware of others' bids and must submit your best proposal for why you should be allowed to purchase the tax sale house. You have one bid.
Your public tender bid must be complete, sealed in an envelope, and delivered to the treasurer's office by the deadline. Ensure the bid package is filled out completely. Form 7 must be typewritten and sealed in an envelope indicating it is for a tax sale. A deposit of at least 20% of the bid amount is also required by money order, bank draft, or certified cheque.
Do a title search for all interested properties. See if there are other claims, mortgages, liens, or pending lawsuits against the homeowners. It doesn't mean to not bid on the tax sale house if there are. Instead, simply be aware that those claims may be something you will need to address later. Ideally, you should find a certificate of title free and clear of all encumbrances.
While traditional mortgages are typically cancelled, if there are Crown interests on the property, those are not cleared away. It is up to you, the new homeowner, to resolve those interests. This is often a lien to recoup unpaid income taxes from the prior individual. If you own the property, this falls on you to cover.
As part of your due diligence, drive by the property in question to visually inspect the outside condition. Don't rely on Google Maps if it can be helped; there is no sure way of knowing if what Maps is showing you is as accurate now as when the photo was taken. While at the property, remember that you aren't legally allowed to do an interior home inspection of any kind.
While on-site, the current owners may not be very receptive to talking to investors. Try reaching out to a neighbor. They may be able to provide information on the property and be happy to talk. This is especially true if they understand you want to turn around the house.
The municipality does not guarantee tax delinquent properties. There are no property showings or home inspections. There may be owners you have to legally evict. There may be damage done that requires repairs and renovations that could add thousands to your investment. Budget accordingly and be ready for anything on the other side of a winning bid.
Not every tax sale home will be a pathway to profit. Many aren't. It is the bidder's responsibility to evaluate every tax-delinquent property listing and determine its value. Furthermore, you may discover after winning a property that the repairs exceed your initial expectations. Be cautious about what you invest in and where.
More and more people are buying tax-delinquent properties. Don't let competition driving up the bid amount cause you to overbid. Don't succumb to temptation. Protect your budget and money. When the right tax-delinquent home comes along, you'll know it, and it will fall within your financial bid parameters.
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