Purchasing tax-delinquent properties is an intelligent investment that allows you to acquire real estate at a lower price than its value. It is also a perfect opportunity to boost your real estate investment portfolio. However, tax sale auctions are competitive and require you to research and prepare well to win the bid and a worthwhile property.
If you are thinking of investing in tax sale properties, here are some tips to get you started:
Know What You Want
Know why you want a particular residential or commercial property and which location is best. Set clear criteria for the property.
Even though local governments do not allow inspection before buying tax delinquent properties, a real estate agent can help you with research. This will enable you to tick as many boxes as possible. Purchasing tax-sale properties is a significant and long-term investment. If a home does not suit your needs, keep looking.
Do a Thorough Property Research
The municipality may not tell you if the tax sale property has a crown interest, liens, interests, or encumbrances attached, but a title search will. A property with a tax lien can have other liens, making it an unworthy investment.
Proceeding with such an investment puts you at risk of losing the home plus your money. After winning the bid, you must pay all the existing liens before completing the sale.
Understand the Bidding Rules
If you buy your first tax sale property, familiarizing yourself with the auction rules and bidding process will do you well. Furthermore, the rules may change from region to region. You have to know what process the municipality you are bidding on uses. It also helps to understand the full scope of what the winning bidder pays after the auction and any deadlines set.
If you win the bid, you will likely pay the amount you won plus all the accumulated taxes, penalties, and interest. You may also have to pay land transfer charges. Many municipalities allow up to fourteen days for all payments to clear.
These payment requirements vary between provinces. Find out what your municipal government wants before auctioning. Understanding payment requirements will help you prepare your finances accordingly.
Set Your Budget
Know how much you are willing to spend on a tax-sale property. Setting a budget allows you to stick to your wiggle room despite the pressure from bidding excitement. In addition, many tax sale auctions require cash payments.
A real estate agent can help you estimate home values in the area so you know how much the property on tax sale may be worth. With this information, you can lay out a workable bidding strategy.
Nonetheless, it is advisable to include some allowance for necessary repairs and remodelling to boost the home’s value. Moreover, remember that other investors will have similar objectives, and only the highest bidder will get the property. Understanding this will help you stick to your budget even when you lose the bid.
Have Your Finances Ready
Make sure your finances are in order before you go to the auction. You cannot mortgage a tax-sale property. In addition, many municipalities demand cash payment for tax-sale properties. Some municipalities accept bank drafts, money orders, or certified checks.
Find out the preferred payment method from the relevant authorities beforehand. Note that you must pay the outstanding taxes immediately after winning. Municipalities allow different times for debt repayment, interest, penalties, and other necessary fees.
Have a Bidding Strategy
Now that you know the approximate home value and budget, prepare a winning strategy before approaching the auction. Low bidders often get off the hook early. So, set a reasonable starting bid to knock off low bidders.
If you experience a counter-bid at this stage, you can easily counter with an increased bid. High bids have value. Starting with a reasonably high bid discourages mediocre bidders from joining the bidding battle. It also shows you are serious and ready to fight for the property.
Seek Relevant Assistance
If you are new to tax-delinquent property investment, it is best to work with experienced parties. A real estate agent with experience in the area where the property is located can offer valuable insights into crucial factors like security in the neighbourhood.
On the other hand, a lawyer can help you prepare the necessary documents when closing the sale. Depending on your buying purpose, an expert realtor can also advise you on properties worth investing in.
Prepare Before the Auction
Investing in tax-delinquent properties is smart, but it requires careful consideration and thorough research. It is an excellent way to boost your investment portfolio and acquire real estate at a lower price.
However, due to the nature of the sale and the auction conditions, it is advisable to prepare well before bidding. Understanding your municipality’s auction rules will give you an upper hand in winning the bid and closing the tax sale deal.
