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Homeowners pay property taxes, which may be anywhere from a few hundred dollars to thousands. When property taxes are not paid year after year, the municipality can take property from the homeowner and sell it in a tax sale. This recoups taxes, fees, and expenses owed.
Buying tax-delinquent houses may be a major opportunity for investors and aspiring first-time homeowners to generate profits. In most cases, the buyer may obtain the property at a fraction of the cost.
Here are some reasons to buy tax-delinquent houses and why you may want to pursue them.
Reason #1: A Stable Way to Invest
The stock market is volatile, but buying tax-delinquent houses is not. As long as you do your preliminary research, most investors can distinguish between properties that are not worth their time and those that are.
Reason #2: Research Is Readily Available
While you cannot conduct a complete home inspection to evaluate each potential tax-delinquent property, much information is found online. It is recommended to look at the house itself and, if you have it, search for the homeowner's name. See if they have passed away or if there are additional details to know. You can also consult with a tax sales expert for more information.
Reason #3: Source of Passive Income
Tax-delinquent homes may need updates and repairs. After these are completed, however, you can sell the home or turn it into an investment property for long-term passive income. It's yours to do whatever you like.
Reason #4: Decide Your Optimal Bid
You don't have to engage in a bidding war by auction or public tender if you do not wish to. Based on your budget, decide how much you're comfortable bidding on. Invest within your limits and call it quits when the bid amount reaches your maximum.
Reason #5: Bid For Houses at Less Their Assessed Value
No municipality aims to get rich selling tax-delinquent properties. They simply want the property taxes paid and the property off their hands. This means, other than outbidding other investors and competition, you may be able to buy a tax sale house at a fraction of its assessed value. This could result in hundreds of thousands of dollars in savings.
Reason #6: A Fast Real Estate Transaction
There is no delay after the highest bidder is selected. Payment is made. The tax deed is registered on the title, and the purchaser becomes the property owner. This can happen in a few days, allowing you to proceed with your tax-delinquent house plans.
Reason #7: Reap the Benefits of Interest Rates
If you buy a tax-delinquent home but before obtaining the certificate, the prior homeowner pays off all the taxes and the property returns to them. This does not put you out, however. Yes, you lose the house. That said, your investment plus interest has been refunded. With interest rates being where they are, this can mean a return even when/if you lose out on homeownership.
Reason #8: A Fresh Slate
Some tax-delinquent houses are purchased for the land. They are either uninhabitable or require such extensive renovations that it may be worthwhile to start from scratch. As an investor, this gives you a fresh slate to build almost anything you like. You can also renovate in your style, crafting the property for your purposes.
Also, the prior mortgage is eliminated. With a tax sale home, as the tax deed is registered, all mortgages are deleted except Crown mortgages. The only thing left is a title search to ensure no other parties are interested in the title.
Reason #9: Turn a Profit
Many tax sale buyers buy lots and land, hold on to them for a year or two and potentially make some improvements. They then sell them off for 4-5 times what they paid for them. Even a vacant lot can turn into a profit for a buyer who purchases it at a tax sale and resells it. This has happened many times, though an investor must know how to research and do due diligence on every property.
Reason #10: There Are Tax Sales Everywhere
Canada has tax-delinquent houses. You do not need to live in the municipality to own a property. Research and bid publicly on properties thousands of kilometres away, acquiring houses and land you can develop. These houses are in low demand in some areas and may not provide the return some investors expect. For others, it's an opportunity to own a home.
