Tax sales in Canada done by auction, as opposed to public tender, can be quite the opportunity for aspiring investors. They can buy properties at a fraction of the cost though you do so with very limited information at the front end of the purchase.
There are risks involved, and if you aren’t knowledgeable about how tax sales work or how to get ready for a tax sales auction, you may find yourself with a tax sale home you don’t want.
Here is how to prepare for a tax sale, with all you need to know about how these auctions work.
Examine Tax Sale Listings Carefully
Days before the tax sales auction, if not weeks, look through tax sale listings in your local area. Comb through the details. Tax sale investors typically do not settle for properties. They may wait months for the right opportunity rather than risk investing in a tax-sale home that may or may not work out for them.
Considering this, search out the right opportunity for you according to your tax sales auction goals.
See If The Tax Sale Home Has Been Listed Before
Dig deep into recent tax sale auctions. Look at if a property you’re interested in has been advertised before. If a tax sale home has been put up for auction within the past six months and without success, you may want to walk away or explore why. There could be something wrong with the property, or the deal may not be everything you think it is, given another glance.
Research Each Potential Tax Sale Property
Do not bid on a tax sale home you have not adequately researched. While you cannot do a full home inspection, like you would if you were buying a property through traditional channels, you can do a title search to evaluate if there are any liens or judgments against it. A prospective buyer may also want to research the neighbourhood and other factors affecting their bidding value.
Physically Drive to the Tax Sale Home
Before a tax sale, drive over to the property. You may not be permitted to enter. However, you can look from public property and get a fair idea of any issues, such as environmental cleanup or something similar.
If you notice fire damage, flood, possible criminal activity, or discover anything that may stigmatize the property in your view or increase the risk of purchase, this is all worth noting.
Research the Tax Sale Auction Rules
Every tax sale auction host will be able to advise you of what the rules are. Look them over beforehand and ensure there are no surprises. This way, you come prepared to make a bid and have it accepted. For example, payment types.
Money may or may not be allowed to be transferred by cash, money order, bank draft, or certified cheque. Be sure to know what’s accepted and what isn’t.
Understand What Your Budget Is
It’s easy to get caught up in the emotions of a tax sales auction but never overbid. Always operate within your budget. This must be strictly followed. As you probably know, the person who submits the highest bid gets the tax sale home at auction.
After a property has exceeded what you’re comfortable paying, forget it and let it go. When the risk is too grand, be smart and pull back.
Consider Engaging a Financial Advisor
You may want to speak with a financial advisor before attending a tax sales auction. This is because, perhaps, with your home, you will want to do renovations or make layout changes that will increase your overall investment cost.
This plays into defining your budget pre-auction and post-auction. Be sure you’re setting enough funds aside to deal with the obvious and hidden costs.
Tax Sale Homes Do Not Sell for the Minimum Amount
If you truly want a tax sale home, be prepared to bid and drive up the price. Tax sale properties never go for the minimum amount, even if it’s just land you’re bidding on. Be prepared to bid in increments while ensuring you are not immediately jumping to your highest bid.
This way, you don’t pay a cent more than you need. Have the money ready to go higher because you must if you want to walk away as an auction winner.
Set Up Your Finances Weeks Beforehand
If you need pre-approval for a personal loan or line of credit, have it set up weeks before? Have the money ready on auction day for a quick sale. You may want to discuss the best way to obtain the necessary funds with a financial advisor.
If you cannot pay quickly, you may lose the property you’ve won, and it would either return to the auction or be provided to the next closest bidder.
