12 Tax Sales Strategies for Beginners

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As a tax sale investor, you have endless ways to make money from tax-delinquent properties. Tax sale strategies for beginners focus on becoming the highest bidder while competing against hefty competition. Depending on whether the tax sale is an auction or public tender, there are traditional methods and more creative strategies that any beginner can use to leverage a win. This will enable them to acquire a tax sale property.

Here are the best tax sales strategies for beginners.

Study the Municipality’s Rules

You can find tax sale listings on the municipality’s website. Read through the listing carefully, note where the house is, and see if there’s a way to go down and see the property yourself. Even if it’s from the road, it gives you a sense of what you’ll bid on.

Every municipality is different and has rules governing the tax sale process. Understand the local rules for a tax sale. If it’s a tax sale auction, you may want to attend before bidding to understand the atmosphere and what to expect.

Talk to a Tax Expert

Profits earned from tax sales are subject to capital gains tax. Also, the purchase may be subject to GST if you acquire the tax-sale property for business purposes. Discuss the optimal approach to minimizing your tax bill with a tax accountant.

Learn a Property’s Assessed Value

Tax sales offer properties at a fraction of their market value. The minimum bid amount, however, will be driven up. Considering the assessed value and how much you’d value a tax-sale property, you know where to minimize your bidding.

Obtain a Title Search

A title search compiles all liens, encumbrances, and legal claims against the property. While the mortgage and most liens are removed after a property is sold for a tax sale, some, such as Crown interests, may remain.

Conduct Neighborhood Research

If you can’t complete a home inspection and are not legally allowed to, the next best thing to do is research what you can about a tax-sale property. Look at the neighbourhood to evaluate average property values, zoning laws, restrictions, and potential market value.

Set a Strict Budget

Keep your budget tight. There is no wiggle room. Know the highest bid you should make. Stick with the numbers to avoid emotional bidding. Be objective and ensure you don’t overpay for something that may not be worth it.

Consider How to Profit

Why are you buying a tax-sale house? The answer matters. If it’s to make you a homeowner, that’s a reason to bid high. Most bidders, however, are investors looking to profit. There are many ways to do this, from renovating and selling a tax sale house at a higher price. In addition, the property is being rented out for a steady stream of passive income.

Meet All Bid Requirements

Pay close attention to the bid rules and ensure all requirements are met. Specific forms must be filled out, especially for public tender. Bidders often also have to submit a deposit and label the envelope or letter in a specific way.

Timing Is Key

Bid in an auction towards the end to avoid an early high bid that drives up the competition.

Set Aside Costs to Cover The Risks

There are risks involved in buying a tax-sale house. Set aside money to cover risks, such as a property needing repairs to be livable. This could be due to permanent damage necessitating a significant renovation, upgrade, or rebuild.

Caution About Tax Sale Financing

It’s easy to invest a lot in bidding on a tax-sale home. Many consider personal savings, lines of credit, credit card advances, and private lenders. Be very careful. You don’t want to put yourself in a situation where you have tapped out your capital and don’t have any savings or funding left.

Recognize You Will Likely Be Repaid

The high return you get off a tax sale investment is not necessarily from property acquisition. Most tax-sale homes never go to the highest bidder as the prior homeowner steps in and pays the amount owing. The result of this is repayment of your bid amount plus interest. That’s a win!

Handle Legal Issues Quickly and Efficiently

You may have legal claims from former owners or existing tenants. You may need to arrange an eviction. Even with title insurance, there can still be claims or past encumbrances you weren’t aware of that come up. Handle legal issues quickly and efficiently.