Investing in Unpaid Property Tax Auctions and real estate in general, is thought of as a great way to increase your portfolio of assets and your net worth.
It offers passive income with long-term wealth. There are, however, several ways to invest in real estate. I suggest the following:
- Purchasing real estate
- Rental Management
- Flipping houses
- Investing in real estate trusts
Investing in unpaid property tax auctions or property tax lien investing can increase your real estate wealth. If you’ve knowledge of the real estate market and are confident in what you’re doing, buying liens can generate a lucrative amount over time.
Unpaid Property Tax Auctions
Tax sales are divided into two parts; a sale of the actual property and its outstanding taxes. Then a tax lien sale, which is the sale of only the property’s liens.
Liens occur when property taxes are unpaid for a certain period. This varies based on the particular regional law regarding tax sales. The municipality then places a lien on the property. The lien can be sold on its own at an auction. The sale of the actual property can only happen once the lien is removed.
The aim of the sale is for the municipality to recover the unpaid property taxes. It’s beneficial for them as they receive the money almost immediately.
Advantages of Buying an Unpaid Property Tax Auction
Investing in an unpaid property tax auction can be a lucrative investment. The benefits are:
- A below market value sale: If the tax sale includes the property, the municipality isn’t interested in obtaining market value. They aim to recover the outstanding taxes with interest, the penalties, and the costs incurred from having the sale.
- When purchasing tax liens, money is made from the interest of these liens which can be very beneficial as these interest rates are usually high.
If the house is included in the auction, the mortgages related to it are often eliminated. However, this isn’t the case with mortgages owed to Ontario’s government (the “Crown”), Toronto, Canada, government agency, or crown corporation.
Investing in an unpaid tax auction reduces the competition you would face when purchasing using conventional methods. However, there’ll be lots of paperwork to complete and obtaining legal consultation will be helpful.
Another suggestion is to familiarise yourself with how the real estate auctions operate. Some purchases made at an auction can be a good investment, and some can be bad.
The risk of purchasing a property at a tax auction is that you won’t know what you’re buying. Unfortunately, the owner of the house isn’t obligated to allow anyone into their home. It’s therefore not recommended as a first buy for a family.
If you’re in the market for a home, Diamond and Diamond will gladly assist you with a quote.
How Unpaid Property Tax Auctions Conducted
By the time a tax sale occurs, the homeowner’s property taxes would’ve been in arrears for some time already. After the sale, the homeowner is given a redemption period to settle their outstanding debt, including interest. If paid, the property reverts to the resident.
If the property owner fails to settle the debt, the property will be sold at auction.
The tax sale takes place either via a public auction or via a public tender. Many of these sales in Toronto are conducted using a tender.
Pre-registration is not a requirement at an auction. Participants are accommodated on a first-come, first-serve policy. The bidding starts at the lowest price, called the ‘Upset price’. This is a total of one year’s outstanding taxes, the previous year’s arrears, and two years prior delinquent taxes, plus the interest and any penalties.
Bidding then increases, and the highest bidder becomes the owner.