Crown interests on property may include Business Development Bank of Canada mortgages liens for arrears of income tax or HST remittances among many others.
Ultimate Guide to Tax Sale Properties in Ontario: Buying Properties Below Market Value
Savvy real estate investors are always looking to buy low and sell higher.
This is the golden rule of investment and is your key to instant equity right off the bat. If you’re experienced in this trade, you must have heard a reference to tax sale properties somewhere. Perhaps that’s what brought you here in the first place.
Truth be told, tax sales in Ontario have insane profit potential and have brought big breaks for investors in Ontario and elsewhere. But you still need a thorough understanding of the process and a solid and time-tested approach for your big wins.
This ultimate guide will help point you in the right direction!
Tax Sales in Ontario: A Brief Overview
Homeowners who fail to pay their property taxes are at risk of losing their homes to a tax sale in Ontario. Wikipedia simply defined tax sale as the forced sale of a real estate property by a government entity for unpaid taxes by the property owner.
Every piece of property in Canada, is subject to property tax.
As a property owner, you’re expected to pay what’s due every year. If you fail to pay this, the property will become "tax delinquent". This starts a path that may eventually lead to a tax sale. Properties that incur tax arrears of three years or more in Ontario get listed as tax sale.
If you are more of a visual-learner, we highly recommend Real Estate - Demystifying Ontario Tax Sales - 2020 udemy course by Tony Lepri.
What’s the value in municipal tax sale properties?
In 2018, the Windsor township listed a tax sale property. The listing came with a minimum tender amount of $24,144.09. By the time tax sale has been released, the assessed value of the property was approximately $85,500.00. A few weeks after the tax sale listing has been released, the property sold for $33,500.00 to the highest bidder of the tender. The successful purchaser had generated a revenue/capital gain of $52,000.00 in less than a month!
This insane profit margin will entice anyone.
But tax sales in Ontario still requires a great deal of caution, experience, and understanding. While there are a lot of hero stories of investors landing big wins in this niche, we’ve also had horror stories of investors who had bought a lemon disguised as a bargain. It’s up to you to arm yourself with all of the knowledge and experiences you’ll need, and the latter parts guide will help with that.
Upcoming Tax Sales Listing
Tax Sales Hub is a first Canadian tax sales aggregator and your one-stop destination for everything about tax sales in Canada.
Whether you’re searching for cheap land for sale or tax sale houses, you can always find information here about every currently available property as well as other information about upcoming listings.
The platform offers updates in the form of weekly emails to registered members about upcoming tax sales in Canada or provinces of your choice. TSH members can easily find details about upcoming tax sales in their community and across the country. Members are armed with detailed information about every property such as: valuable tax sale tips to avoid rejection rejections and possible pitfalls (avoiding rejections on the grounds of technicalities), as well as tender document package with every necessary document included. Additionally, all members of TSH are also able to enjoy 50% discount on getting Title Search Report.
How to Submit Tax Sale Tenders
We help real estate investors who would like to participate in the Public Tender tax sales in Canada. These tenders are expected to be submitted by bidders in sealed envelopes, in person, via mail, or by courier.
So, you can expect that you won’t be the only one submitting a tender. However, the highest bidder goes home with the sale. But just in case the highest bidder is unwilling to buy the property, the second-highest tenderer automatically gets the right to purchase the property.
There are a few things you want to consider before sending in your bid:
- Property size;
- Property’s minimum tender amount;
- Assessed value of the property;
- Property location and accessibility by public or private road;
- Potential revenue;
- And a lot of other factors
However, all of this information is made readily available for members of the TSH platform.
Once done, you can then start the process of sending your tender. This should, however, start with how much you’re willing to pay for the property and completing Form 7.
Completing "Form 7 -tender to purchase"
You’ll need to complete Form 7 to make your bid. This form contains important details such as your name and address as well as your tender amount.
Tax Sales Hub offers tips on how to complete form 7 for anyone who wants to make an offer, whether as individuals or as a company. Every tax sale property listed on our website is accompanied with the documents package you need to submit the tender. The documents package includes already pre-filled Form 7 as an interactive PDF, so all you have to do is to fill up your information, sign it, and put it in a tender envelope.
Why title search is important?
Some tax sale properties may have mortgages, liens, and executions that still remains valid, even a after a tax sale in Ontario.
This means that some of these may still affect the property even after the sale. Any applicable lien, as well as other interests in favor of the Crown, may still be tied to the property after the sale.
If you want to be sure where things stand, you’ll be better off with a title search report. This request will help you access advanced information so you know what interests, liens, and executions may be tied to tax sales houses you may want to buy. Of course, this will help you determine if the purchase is worth it, to begin with.
How to get a title search
This will cost you about $150, at most. TSH members can, however, get theirs for about $70 to $80 (discount about 50%). The benefits will be worth far more than the cost. A title search will uncover a whole lot of important details about the property.
These can include:
- Ownership details
- Mortgage(s) against the property
- Surveys on the title
- Easements/restrictive covenants, etc
The title search provides access to relevant information that may affect the property after tax sale deed. It will show you all of the available records on the title documented in the Land Registry Office.
While an execution search is also similar to a title search, execution search solely focuses on available court records of any judgment against the property owner. Orders involving the Crown are generally a red flag.
Crown interests can range from the income tax and the retail sales tax act to the Canada Revenue Agency, Ministry of Finance, and the Business Development Bank, among others.
Judgments in favor of the Crown are still attached to the property even after the ownership changes. If the previous owner owes anything, this debt is automatically transferred to you. This is why most people try to get an execution search to differentiate tax sale houses with true potential from ones that would become sinkholes.
But TSH members don’t have to worry about getting an execution search separately; this is included alongside title search for TSH members.
Sending your deposit
The whole essence of the process is to buy a property at below-market-value and then sell for a higher price, possibly after a few renovations and repairs here and there.
You don’t want to pay too much just to win the bid. At the same time, you also won’t fancy being priced out by other competing bids.
But with experience as well as a critical examination of the factors we discussed above, many smart investors can find the sweet spot that tends to win on most occasions.
You’ll be required to send a deposit along with your tender. This should be at least 20% of your offer and can be in the form of a bank draft, money order, or certified check in a favor of municipality.
If you win with your bid, you’ll get the right to purchase the property no later than 14 days after the tender date. This means everything from the full payment (minus the 20% you’ve already paid with cheque) to the land transfer tax and other additional taxes, and interests should be paid within these two weeks.
Failure to do so will cost you your deposit and the right to purchase the property. The second-highest bidder automatically gets the nod to buy the property.
Submitting your tax sale tender
Tax sale tenders in Canada should be submitted in a sealed envelope that bears the description of the property. This description can be a written address, or just about anything that will be sufficient enough for the treasurer to identify the property in question.
We provide to our members, as a part of tender documents package, tender envelope printable PDF document, which you can easily stick to the regular mail envelope and make it tender envelope.
Tips to Avoid Tender Rejection
Tax sales by public tender is an excellent opportunity for any individual or investor looking for cheap land or house for sale at incredibly low prices that usually represent high-profit potential. But the process is not without competition.
While you want to be able to beat the competition, you have to tick all of the correct boxes at the right places to avoid rejection. These are some important things to consider;
- Fill in the correct details for Form 7
- Accompany your tender with no less than 20% of your bid price
- Be ready to pay the full payment (outstanding payment) and related taxes within 14 days
- Submit your tender by the designated date and time for the tax sale. Make sure tender is received by the municipality before tax sale end date.
Preventing Tax Sale Losses With Due Diligence
Last year, the municipality published the tax sale of incredible pieces of cheap land for sale. These were in the Muskoka Lakes area. One of these land tax sales was a perfect land for a cottage close to the water and surrounded by the woods.
Minimum tender amount was $4,375.40 but eventually sold for $4,575.00. The assessed value of the land was $16,000. It turned out the purchaser made $11,525 profit.
There have been a lot of stories of success like this. But there have also been many more horror stories that no one would love.
What happens when you buy a property that’s worth next to nothing?
What happens when you discover that that incredibly-priced property is actually-run down and renting or selling it out will be almost impossible?
You don’t have to base your decisions on luck or fate. You may end up getting burned. And this is the last thing you want. To rule out unpleasant experiences like this, it’s important to conduct due diligence with every tax sale property you hope to get.
But what’s involved if you would be conducting due diligence on tax sale properties in Ontario or elsewhere?
- Request for a title search;
- Get an execution search; and
- Try seeing it yourself.
You can open Google map and use a street mode feature to have a closer look, but sometimes Google street view will have deprecated pictures that may be about 2-3 years old.
But when it comes to tax sale in Ontario, and in real estate transactions, generally, these tend to fall short. Before you start planning on a tax sale property with a price that seem too good to be true, you have to be sure everything is in order.
Once you’ve done title search and execution search and there’s still no problem, the next thing would be to conduct a visual inspection of the tax sale property. This will help you gain firsthand knowledge of the issues that may come with buying the property. If there is a house on the property, for instance, we’d recommend visual inspection.
IMPORTANT: You don't have the right to enter a tax sale property until you own it. However, you can view the property from the road or sidewalk or from a body of water if such property is a waterfront property.
Will you be able to put up with these issues after the inspection? Will all of the stress, time, and money be worth it? Well, all of these questions are best answered with a visual inspection of the property.
Tax Sales in Ontario have huge profit potential
The city doesn't conduct nor allow tours or access to the tax sale properties, you still have to conduct due diligence to ensure you don’t get hurt.
Tax Sales Hub provides comprehensive information about past, current, and upcoming tax sale listings for free.
Title Search Report provides access to relevant information that may affect the property after tax sale deed.
You’ll need to submit your tender along with other competing bids for the sale, along with at least 20% of your offer.
If you win, you’ll have to complete payment and additional payments such as land transfer tax no later than 14 days to the tax sales date.If you’re considering testing the waters of tax sales in Canada, Tax Sales Hub will be of great advantage.
Get to know what is accumulated taxes, Crown interest, title search report, execution search report, land transfer tax, municipality, and etc.
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.