Do you want to own properties at a discount? Tax sale delinquent auctions are suitable for this purpose. These auctions involve properties whose owners fail to pay property taxes for a specific period. The government sells the properties or claims the property to recoup the owed taxes.
Tax delinquent auctions offer a path to acquiring properties at a discount. However, it’s not as easy as it sounds. If it were, everyone would do it. Tax sale success hinges on thorough research, understanding the auction process, and strategic bidding. It’s not about how many properties you walk out with from an auction but how profitable each property is. A calculated strategy can help you turn this unique investment into a rewarding venture.
Although these auctions can be a lucrative path to property ownership, you’ll need knowledge to succeed. Below, we’ll share tips to help you navigate these auctions and make informed investment decisions.
Understand the Tax Sale Auction
Not every tax sale ends with the winning bidder owning the property. Before signing up for an auction, determine what type it is. Tax sales are divided into tax lien sales and tax deed sales. In a tax lien auction, the government sells the claim against the property, not the property itself.
As the winning bidder, you’ll pay the final price: the tax owed plus interest and penalties. The municipality will award you a lien certificate, and you’ll earn interest until the owner redeems the property. However, you can initiate foreclosure through a court process to gain property ownership if they don’t.
If it’s a tax deed sale, the winning bidder gains property ownership. However, a redemption period may apply depending on the municipality. For instance, municipalities in British Columbia give a one-year redemption period starting on the tax sale day.
Research Properties
Research is crucial if you want to profit from tax sales. It will help you differentiate gems that make you money from worthless properties you should avoid. So, how do you conduct property research? It starts with identifying all properties available for auction. Most provinces and municipalities maintain online listings of properties scheduled for tax sale auctions. These listings typically include details like property addresses, lot sizes, and minimum bids.
Go through the listing and identify properties you’d like. Check the minimum bid to determine if you can afford it. From there, do a title search to see if the property has other liens or legal disputes. If it has other liens, add them to the upset price to determine if you can still profit. If not, or if there are legal disputes, the property is not worth the effort.
Next, get as close to the property as possible to confirm its condition. Although you might not be allowed to inspect inside, signs of neglect like peeling paint, damaged siding, broken windows, a leaky roof, overgrown vegetation, or significant structural cracks should tell you all is not well. You should then factor in maintenance costs. Consult with a tax sales expert to help you understand the area’s current market trends.
Understand the Auction Process
Tax sale auction rules and procedures vary depending on your location. For this reason, familiarize yourself with local regulations governing minimum bids, bid increments, and closing procedures. The information will be available on the municipality’s website and provided during pre-sale informational meetings.
However, remember that not every municipality has these meetings, so you cannot rely on them for information. If you can’t find the information online, contact your municipality’s treasurer’s office.
Have a Bidding Strategy
Next, you need to create a budget for each property. This step will be determined by the property’s condition, market trends in the area, and the profit you intend to make. A budget prevents overspending and keeps your investment strategy on track.
Now that you have a budget, you need a bidding strategy. You can start your bids higher, especially for desirable properties. This can discourage other bidders and secure the property at a lower price than your maximum.
Alternatively, you can make incremental increases, slowly raising your bid throughout the auction. This approach can be effective for less competitive properties. If you are a beginner bidder, attend several auctions to understand how they work.
Post Auction Process
If your bidding strategy worked, it’s time for the last step. If it was a tax deed sale and the municipality doesn’t give a redemption period, you can record the deed with the government to gain ownership. If there’s a redemption period, you’ll have to wait to begin the process. Once you gain ownership, you can evict the occupants and repair the property.