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Home Real Estate
Tax Delinquent Properties

What to Expect from Tax Delinquent Properties

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When you win a tax-delinquent property at a public auction or public tender, it could be a great opportunity or a complete flop. Buying these properties always carries risks, no matter the listing. However, the potential profit is limitless if you do your homework and make the right bid.

Whether you’re new to investing or have some experience with tax sale homes, here’s what you can expect from properties that owe back taxes.

Table of Contents

  • Understand the Rules
  • Priced Below Market Value
  • A Range of Neighborhoods
  • Payment Is Owed Immediately
  • Property That Hasn’t Been Maintained
  • Repairs Can Be Costly So Budget for It
  • There May Be Other Hidden Costs
  • Code Compliance Is Essential
  • Potential for High Returns
  • Title Searches Will Tell You a Lot
  • Most Property Claims Removed
  • Prior Owner Difficulties
  • Redemption Period
  • There Will Be More

Understand the Rules

Every municipality sells tax sale homes a little differently. Many tax sales in Ontario are made by public tender; however, some governments prefer a tax sale auction that is either live, online, or conducted in person. Understand the rules of when, where, and how to bid.

Priced Below Market Value

Municipalities want to offload tax-delinquent homes as quickly as possible. They don’t want a hassle; they simply want the taxes owed to them. All tax-sale properties are offered below market value. However, competitive bidding can drive up the final sales price of a tax-sale home.

A Range of Neighborhoods

There are tax delinquent properties in every kind of neighbourhood imaginable. It could be a safe, well-maintained area, a rural farmland and open roads region, or a busy city region with strong rental demand.

Payment Is Owed Immediately

If you bid on a tax sale home and are declared the highest bidder, you must pay the promised amount immediately. This means you must come with the money ready by cash, certified cheque, or money order. There is no time to finance a tax sale purchase with a mortgage.

Property That Hasn’t Been Maintained

Why properties become tax delinquent typically relates to the owner facing financial hardships. This generally prevents the upkeep and maintenance that a property should have received. An absentee homeowner or inherited property that was never claimed may also mean a neglected home.

Repairs Can Be Costly So Budget for It

While you may arrive at your tax sale home and nothing is wrong, be prepared to make repairs. This could include everything from cosmetic damage that needs to go to major structural issues, environmental spills, and more.

There May Be Other Hidden Costs

Unpaid utilities, building code violations, and HOA fees may be attached to a property. Though these are usually minor expenses, they are something to be aware of.

Code Compliance Is Essential

When renovating a tax sale property, check local regulations to verify that the renovations meet building and safety codes. The last thing you want is non-compliance, which can lead to filings or having to retrofit.

Potential for High Returns

There are many ways you can make money with a tax-delinquent property or earn profits from securing a home from a tax sale.

Convert your tax-delinquent property into one or more rental units for consistent monthly passive income. Sit on the tax sale of real estate without doing much and let it appreciate before selling it for market value.

Repair what needs repair and renovation to add value before flipping the house for maximum profit. Gut or demolish the tax sale house as-is and rebuild on the lot, utilizing the neighbourhood value as your metric.

Title Searches Will Tell You a Lot

There could be outstanding liens or legal complications with the title of your property. Know if this is the case when you get a title search done. This will tell you what claims you must contend with should you be declared the highest bidder.

Most Property Claims Removed

Most liens and claims, including the mortgage, are removed from the title when a property is taken for a tax sale. In a perfect world, the property comes to you as free, clear, and simple as possible.

Prior Owner Difficulties

The prior owner may still be living at the tax-delinquent property. If so, you can legally evict them. However, this must be done legally, which can take time and cost a real estate lawyer. Before you buy delinquent tax properties, research the location properly first.

Redemption Period

The prior homeowner may be given a final redemption period, during which they have their last chance to pay the fees and taxes to secure the property. Wait until this redemption period has passed before renovating or investing more money into your tax-sale house.

There Will Be More

If, for whatever reason, you cannot secure a tax-delinquent property at auction or by public tender, understand that hundreds of properties across Canada go into a tax sale every year. There will many houses with unpaid taxes in your area, presumably in the next quarter or year.

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