A tax sale is all about profit. How to derive profit from a tax sale is tricky. After all, it’s investing without knowing all the details about the asset. There is risk involved. Those who buy tax-sale homes smartly and do it well can make a lot of money. However, a beginner’s guide to tax sales in Ontario has to examine the pros and cons of tax sales, showing the rewards and risks of getting involved in this form of investing.
Here’s a beginner’s guide to tax sales in Ontario:
What Is a Tax Sale Home?
A tax sale home is a property where the homeowner has not paid the property taxes for an extended period. To recoup those taxes, a municipality initiates a forced sale of the property at a fraction of its assessed value.
How Tax Sales Work: Public Auction and Public Tender
When many people think about tax sales, they think about a public auction. While those happen, most tax-sale homes are sold by public tender. In a public tender, bids are submitted by mail in a written document before the deadline. The bid with the highest amount is rewarded with the tax sale of the property.
Deposit Is Included with a Public Tender Submitted
A deposit of 20% of the total tender amount must be included when a tender is made. The forms must be filled out correctly to accept the offer as a legitimate tender. In Ontario, anything less than 20% is rejected outright.
What You Are Required To Pay on a Tax Sale Home
When purchasers buy a tax sale property, they will pay any accumulated taxes on the property, applicable taxes such as land transfer tax and HST, and the amount tendered.
What the Minimum Tender Amount Represents
Bidding starts at the minimum tender amount or minimum bid amount for a tax sale home. Due to increased competition from individuals and corporations, the property is rarely sold for its minimum bid or tender amount. Therefore, as a beginner to tax sales, one must decide what to put forth as a bid.
What Are Acceptable Forms of Payment
The money you bid for a tax sale home must be immediately accessible. The standard acceptable forms of payment include cash, money orders, bank drafts, and certified cheques.
How Much a Tax Sale Investment Can Make You
A tax-sale property is not uncommon to be bought at 30% of its assessed value. If one wins a tax sale listing and sells it later, assuming it’s the right investment, that is quite the return waiting for them. This isn’t rare, either, although horror stories of wrong tax sale investments are out there.
How You Can Inspect a Tax Sale In Ontario
A prospective buyer does not have the right to enter a tax sale home. There is no right to inspect it. As you can’t do a home inspection as you normally would with a real estate transaction, you have Google Maps to examine the area and what you can see from public property, such as the road. This is the best way to inspect the property and get a glimpse into what you’re buying.
A Title Search Is a Must for Tax Sale Investment Success
A title search will tell you if there are any mortgages, liens, or executions on the property. While most claims are removed when a property is up for a tax sale, if Crown interests are involved, claims could still be attached to the property. A buyer – that’s you! – will want to know whether a given tax sale home comes with such claims as any judgments on the property or debt could be transferred to you as the new owner.
You Become the Owner of All That Comes with a Tax Sale Home
Another thing to consider when buying a tax-sale home is that any issues on the property are effectively transferred to you. This includes if there are complicated previous ownership issues or a prior owner refusing to vacate, an environmental spill or damage to the land that you must fix, and more. It becomes your responsibility to remedy these circumstances.
The 1-Year Redemption Period with a Tax Sale Property
If you buy a tax sale property, the prior owner has up to 1 year to redeem the property by paying the taxes owed on it. Throughout this year, they retain the right to keep living there, your ability to alter or sell the property is complicated, and you, as the buyer, become responsible for expenses on the property. However, if no redemption occurs, the property is yours in full after the year ends.