Category Archives: Tax Sale

10 Tips on how to buy a tax sale property

Ten tips on how to buy a tax sale property

I wanted to write a follow up or addition to my previous post about buying properties at tax sales.  Other than how to find and purchase foreclosure properties, the tax sale purchase process is what I am asked most about.

Lets get started.  It is important to realize that every municipality, state, parish, region or area will likely hold a tax sale at least once per year.  It is also important to realize where ever you are, they set there own rules around property tax collection and disposal of properties that have unpaid taxes owed on them.

There was a tax sale this past week in my home city, so the experience is fresh, and I figured I would summarize what to do, to give you the upper hand when buying tax sale properties.

It is definately a high risk way to purchase properties, however, it can also have big rewards.

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#1 Print off a list of the properties that will be offered at the tax sale from your areas website, well in advance and on the day of.  Make note of any changes.

#2 Locate the properties you are interested in buying and drive to the sites.

#3 Understand what “as is” means in your area as related to properties sold by way of a tax sale.  when you arrive at the site, causiously take a look around.  Smell the air close to the building, if you smell oil, mold, gas, etc.. you might want to walk away.  View the overall condition.  Is the property occupied, is it in an area you want to own a property in?  What is you first impression, and can you achive what you want based on the appearance.  In my area, the city takes zero responsibility for any environmental, physical, or occupant issues with properties sold at a tax sale.

#4 Determine the maximum price you will pay for the properties you selected, and make sure they will meet your investment criteria for the purchase.  Is it a flip as is, flip renovated, buy and hold with current building or a tear down vacant land hold, or if the property is vacant can you get it rezoned, or is it worth holding as vacant land.

#5 Make sure you are aware of the accepted forms of payment at the tax sale you plan to attend.  The one I attended this past week only accepted the following:

TERMS: PAYMENT OF CASH, CERTIFIED CHEQUE, MONEY ORDER , BANK DRAFT, IRREVOCABLE LETTER OF CREDIT OR LAWYERS TRUST CHEQUE AND NOT OTHERWISE. A purchaser at tax sale shall IMMEDIATELY pay the purchase price or deposit an amount equal to the TAXES, INTEREST, OTHER LIENABLE CHARGES AND EXPENSES. The balance of the purchase price, if any, MUST BE MADE WITHIN THREE (3) BUSINESS DAYS OF THE SALE BY CASH, CERTIFIED CHEQUE, MONEY ORDER, BANK DRAFT OR LAWYERS TRUST CHEQUE AND NOT OTHERWISE. COMMERCIAL PROPERTY WILL BE SUBJECT TO HST CHARGES. PURCHASER WILL BE REQUIRED TO PROVIDE AN HST REGISTRATION NUMBER AT THE TIME OF SALE.

#6 Keep your emotions in line:  The best idea is to bring a bank draft made out to the city for the required starting bid of the property or properties you have seleced.  If you do not buy them, you can take the cheque back to the bank.  Then do not let bidding emotion take over.  The reason it is an auction is to make it fair, and competitive.  Keep your emotions in check.  If you do not get a property, that is ok.  You are better to not get a property rather than pay too much.

#7 Understand the redemption period (if one exists) In the sale I attended this past week there were 17 redeemable and 1 non-redeemable properties.  What that means is that even if you were high bid and purchased a property if it was labled redeemable, the deeded owner has 6 months to pay the tax bill, interest on your money, cost of  insurance, and any nesessary cost to secure the building during the redemption period (boarding up windows, patching the roof, mowing the lawn etc.)

If you renovate the property, you will not get reinbursed for the cost of the renovation.  Also if the roof is leaking, it is best to patch it, rather than replace the whole thing.  You can cut the grass, but not trees.  You can collect rent if it is tenant occupied, but it will be deducted from your costs at the time of redemption.

You basically need to get insurance, change the locks, cut the grass, make the property safe and secure and wait the six months.  At the six month mark, the paperwork to transfer the deed will be provided.

If the property is non-redeeemable then you get to take full ownership right away.  It also means it likely has been vacant for a long time, and likely has a reason for not selling at a previous tax sale.

#8 Understand the rules around current occupants in the property:  When you buy a tax sale property they are truly as is.  That means they could be occupied by tenants who are willing to pay rent, tenants who are unwilling to pay rent, a family member to the deeded owner who cannot pay to purchase the property, but have been living in it for several years (possibly with mental or physical limitations).  It could be occupied by squatters (people who just decided to move in), you might be buying a crack house occupied by drug users, drug dealers and prostitutes.  It could have rodents, or other animals living in it.  In the case of the tax sale I attended the other day it is up to the buyer to work with the local residential tenancy board, police, pest control, and animal control to deal with current occupants.  The good news is that you can start working on your evictions or new lease arangements right away.  That will allow six months to clean up the occupant issues.

#9 Make a plan for the property, when you purchase a tax sale property you may think you know what you want to do with it before the sale.  The plan may change based on the true condition of the property once you own it.  It may change from a buy and hold to a complete tear down.  You may discover that, it is a poor fit for your investment portfolio and decide to sell it.  You may decide to fli it as is.  What ever you decide to do, you will likely have a redemption period to plan and decide which direction your project is going to go in.

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#10 Understand your personal risk tolerance.  When you buy a property from a tax sale, it is a risky investment.  Like most high risk investments, if they work out they have high returns.  If they do not work out, it is almost always a negative result.  Make sure you think about the emotional impact of paying thousands of dollars for a property that you cannot properly inspect before you purchase.  When you buy from a tax sale it is gamble.  Property investing can often feel like a gamble at the best of times, however, to buy from a tax sale, you have to keep your emotions under control, so you do not get into a bidding war and over pay.  Then you end up with a vacant property that you will need to check on regularly during the redemption period to please the insurance company.  The other side is you may end up with an occupied property, where the occupants are not paying rent.  You will need to figure out how to get rid of them.  You may also think you got a great deal, then realize the place is full of mold and asbestos.  If you are a risk adverse investor, I would not recommend buying from a tax sale.

I hope you will find these 10 tips have helped you prepare for your next tax sale.  The first step is to get educated.  I would recommend you go to Google right now and find out when the next tax sale is in your area.  Then attend as an observer.  I have found that the people working the tax sales are very helpful.  They want people to attend, so they can start generating tax revenue once again (you are responsible for the tax right from day 1, even during the redemption process).  As long as they get the starting bid amount, all back taxes will be paid.

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Thank you for reading

Mike

 

My first tax sale

My first tax sale

The mysterious tax sale.  I have heard hero stories about people making huge profits buying and flipping tax sale properties.  I wanted to find out what it was all about.  I figured I would gain experience by attending a smaller town tax sale as my first one.

Shelly and I have some properties in her home town (Digby Nova Scotia).  I figured this would be a good place to start.

I googled tax sale Digby, and in the search results I found information on the municipality of Digby’s up coming tax sale.  There was a list of all the properties and owners names on the municipality website.

I searched for properties that I found interesting, then I had our area property manager drive by and take some pictures.  You do not have the opportunity to enter the properties, but you can view them from the outside.  A lot of the properties listed were land only.  There were a few on my list with houses, but the homes were in pretty tough condition.

The tax sale is a town or a cities last resort to collect owed property tax and turn the property over to a property owner that will pay the tax.  The city or town will make numerous attempts to collect the money from the property owner before the property is auctioned off.

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In the case of the sale I attended, the properties (approximately 30) were a minimum of three years in arrears.  That means the owners of these properties have not paid tax for a minimum of three years.

If you were the successful bidder on a property the property owner has six months after the sale to pay the taxes and redeem the property.  If you are the high bid and pay for the property you have to wait six months, before you access it.

When I arrived at the sale, the parking lot was packed.  I walked into the building and it was clear everyone was there for the sale, so I was given a list of the properties that were going to be auctioned off.  The amount of tax and fees owned was also listed.  That portion of the bid needs to be paid immediately.  The balance has to be paid in three business days.

I walked into council chambers (where the auction was being held).  I managed to find a chair, and waited for the bidding to start.  The auctioneer (in this case she was the deputy warden) went over the rules.  Then the bidding began.  What you were instructed to do, to place a bid was to state your name and amount of the bid.  The bidding starts at the amount of tax and fees owed, which on some of these rural lots was as low as $400.  This of course is a starting bid, so some water front properties reached $60000.  You need to pay the taxes owned and any fees associated with the property on the spot with either credit card, certified cheques, debit, or bank draft (you have three days to pay the balance).

I almost made a mistake and got caught up in the action.  I wanted to buy something and since all the properties on my list got redeemed before the sale, I was re-evaluating the list.  A property with dwelling was coming up.  The start bid was $2539, so I figured how bad could it be.  A house that I could rent for $2539, what a deal.  I tried to see it on google earth, but it was on a back road, so I could only see it from a blurry satellite picture.  There was only one bidder on the property, and as they were about to do the final call for bids, my rational side kicked in, and I resisted the temptation to bid.  The successful bidder got it for the taxes owing ($2539).  I picked up Shelly after the sale and told her we were going to drive by a house, and I was going to either say, thank god I did not buy that, or dam I missed a great deal.  We drove by the house, and I am glad I did not get it.  It was a dump on a small lot, surrounded by other abandon houses.  I would base the real estate value at very close to zero.  I am not sure what happened to the owner, clearly no one had been living in the house for a long time.  I mentioned earlier in this post that the taxes had not been paid for three years, so if an owner is not paying taxes, they are usually not taking care of the up keep.

I would describe the people that attended as coming from all walks of life, some older people, younger people, people from all over the province.  One thing that everyone had in common, was they were hoping for a great deal on a piece of real estate.  There was a great optimistic energy in the room.  I am sure some people went away happy, others who were caught up in bidding wars, were not too happy.  I saw some people get frustrated.  I saw some folks not bid on anything, and others bid on everything.  I am excited to attend another tax sale.  I do realize that you may have to look and bid on several properties before you get a great deal.  You also need to make sure you do your research and be disciplined and only bid on what you plan to buy.

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Here is a summary of how it all works:

1. How to find a tax sale:  Google tax sale and whatever city or town you want to buy real estate in.  If they do not have a tax sale listed, send them an email from the “contact us” section of the website.

2. Check out the listings: Take a look at the tax sale listings.  Do a drive by or have someone you can trust do a drive by of the properties and take some pictures.

3. Decide how much you are willing to pay: Decide what you are going to bid on and how much you are willing to pay.  Do not get carried away and pay too much.  Do not let your ego do the bidding for you.

4. Realize you will now have to pay all future property tax:  Make sure to realize, that if you do get the property, you will need to pay the taxes from now on.  I mention that, because some people might be tempted to buy a bunch of cheap parcels of land, and then have to pay a bunch of property taxes every year on land they do not necessarily want.

5. Have cash or credit card ready on sale day:  You need to pay the tax balance and fees owed at the sale with cash, credit card, bank draft, or certified cheque.  I mean on the spot.  You go from the bidding room right to the cashier.  Everything above the tax and fees owned needs to be paid within three days.  You need to have a high limit credit card ready on sale day, and then access to the rest of the cash you will need within three business days of the sale.

6. If you are high bid, can you move in immediately:  When you are the successful bidder and you pay, your money gets held for six months.  The owner has six months to pay the taxes owed and fees and redeem the property.  If the property is redeemed your cash will be returned to you with interest.

Michael P Currie

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