Investing in tax sale properties can be lucrative, but it requires a clear understanding of the process and strategies to maximize your chances of success. If you’re new to tax-delinquent property investments, this step-by-step guide will walk you through everything you need.
Tax Sale Hub offers the ultimate way to navigate the tax sale markets. We offer a unique platform designed purely for investors looking for a way to maximize the investment potential of tax-impacted land. We offer easy-to-use and intuitive search options to find the best tax-exempt property to buy and sell. We have the best tools for making tax-effective investments in highly regulated assets and ensuring that they meet all your criteria.
Tax sale properties are real estate assets sold to recover unpaid property taxes. In Canada, property owners who fail to pay their tax arrears may have their properties seized by the local government. After tax delinquency, municipalities sell the property outright, transferring the tax deed to the highest bidder.
A tax sale is a public auction or tender where properties with unpaid property taxes are sold to recover the outstanding taxes. Governed by the Municipal Act, the primary goal of a tax sale is to recoup the amount of taxes owed, along with any penalties. For investors, tax sales present a unique opportunity to purchase properties at prices often below market value. However, it’s crucial to understand the process and the inherent risks involved. Properties sold at tax sales may come with various encumbrances or require significant repairs, so thorough research and due diligence are essential before making a bid.
These sales offer a unique opportunity for investors to purchase properties at a fraction of their market value. Still, before diving into the bidding process, it’s essential to understand how tax sales work. You will find an overview below.
Before participating in a tax sale auction, thorough preparation is key. Start by researching the property in question, reviewing the tax bill, and understanding the minimum bid and upset price. Conducting a title search is also crucial to ensure the property is free from encumbrances that could complicate ownership. Additionally, familiarize yourself with the redemption period, which allows the original owner a chance to reclaim the property by paying the delinquent taxes. Understanding these elements will help you set a realistic budget and make informed decisions during the auction.
Municipalities will advertise properties up for tax sale in local newspapers or online. These advertisements include property details, outstanding tax amounts, and bidding dates. Tax Sales Hub provides investors with an up-to-date list of tax sale properties in multiple provinces of Canada. Investors should regularly check these listings to find potential properties.
Once you’ve identified a property that interests you, it’s crucial to research its value, condition, and encumbrances. Look for information such as:
• The property’s assessed value
• The minimum bid amount, which is the lowest price a municipality can accept in a property sale, composed of the tax arrears, penalties, and costs associated with the tax sale.
You can conduct a title search report to uncover legal claims, including mortgages or other encumbrances. It will help you determine if the property is free from serious legal entanglements.
Tax sales are held through public auctions or tenders, where the highest bidder wins. Before the auction:
• Set a maximum bid based on your research and the property’s potential value.
• Ensure you have the necessary funds, as most municipalities require payment in full at the auction or shortly after the sale.
If the tax sale is held as a tender, submit your tender in a sealed envelope, following the municipality’s instructions and meeting the submission deadline. Tax Sales Hub provides step-by-step instructions and pre-populated documents where you need to add the tender amount, attach a deposit, and mail it to the municipality office.
On the day of the auction, make sure you’re prepared to bid. Follow the auctioneer’s instructions and be aware of how bidding works. Stay within your budget to avoid overbidding and ensure you’re making a sound investment.
To submit a tender, investors must complete a Form 7 Tender to Purchase and include a certified cheque or money order payable to the municipality. The deposit must be at least 20% of the bid amount, and the bid must meet or exceed the minimum bid advertised. The tender envelope should be submitted by the specified deadline, ensuring it is time-stamped and placed in a sealed, locked tender box by the municipality. This process ensures that all bids are handled fairly and transparently.
The municipality collects the submissions and opens the envelopes at the designated time for tenders. The highest bid is then selected, and the municipality will contact the successful bidder via mail to request payment of the outstanding amount.
If you’re the successful bidder, the municipality will issue a tax deed, transferring the property ownership to you. At this point, you are responsible for the property, including any further taxes, maintenance, and potential risks.
The redemption period is a crucial aspect of the tax sale process. In some provinces, after the tax sale, the original property owner has a set period (typically 6 months to 1 year) to redeem the property by paying the delinquent taxes, plus interest and penalties. During this time, the investor who purchased the tax lien certificate cannot take ownership of the property. The municipality transfers the tax deed to the purchaser if the property owner doesn’t pay the delinquent taxes within the redemption period.
Understanding whether a redemption period applies to a property you’re interested in can help you make informed decisions about the timing and risks of your investment. Please check the listing information on the Tax Sales Hub platform to see if the redemption period applies.
After the tax sale, the successful bidder is required to pay the municipality the full purchase price, which includes accumulated taxes and any applicable land transfer tax. The former owner has a redemption period to redeem the property by paying the total amount of the upset price, including all costs and taxes advanced by the purchaser. If the property is redeemed, the municipality will refund all the money paid by the bidder, plus interest up to the date of redemption. If the property is not redeemed, the process of transferring ownership to the new owner begins, finalizing the investment.
While you may get a great deal, there are potential risks to consider:
• Environmental Risks: Some properties may be contaminated or require significant repairs. If possible, always inspect the property or research its history.
• Crown Interests: Some properties may still have encumbrances from the government or tax foreclosure claims. A title search report can help identify these issues before you bid.
• Eviction Risks: If the property is occupied, you may need to go through the eviction process, which can be time-consuming and costly.
• Do thorough research on the property before bidding.
• Set a clear budget and avoid getting caught up in the excitement of bidding.
• Consult with professionals, such as real estate lawyers or tax experts, to guide you through the process.
After you’ve won the auction and acquired the property, there are a few more steps to take:
• Transfer of Ownership: Ensure the tax deed is appropriately registered with the local land registry.
• Property Management: If you plan to rent or sell the property, ensure it meets local housing codes and regulations.
• Handling Occupants: If the property is occupied, you may need to initiate eviction proceedings.
Ready to get started? Watch for active property listings, gather your resources, and begin your investment journey today! This step-by-step guide is designed to help investors confidently navigate the tax sale process in Canada. Using proper research methods and following key strategies, you’ll be better equipped to make informed decisions and succeed in this niche market.
By following these steps and understanding the intricacies of tax sales, investors can navigate the process with confidence and increase their chances of securing profitable deals and purchasing the property below market value.
We'll send weekly emails to our members with details about newly listed tax sales across Canada. Our properties search page will provide currently listed properties, as well as history of past tenders.
The municipality Treasurer will open the sealed Tender Envelopes in a place open to the public, as soon as possible after the last date and time for receiving tenders has passed.
Spring and fall are the busiest seasons for tax sales with winter being the slowest. Because tax sales are very time-consuming for municipalities, they generally engage in tax sales during periods of time when they are typically less busy.
