A home with delinquent taxes arises when the homeowner fails to pay their tax bill and the municipality has finally had enough. The property then goes up for grabs by public tender or public auction, allowing individuals, investors, and companies to own real estate for a fraction of the cost. Tax-sale homes, however, come with risks.
Not all homes with delinquent taxes are winners waiting to be uncovered. Here are some key tips for buying a home with delinquent taxes and to mitigate the risks of such a purchase.
Tip #1: Don’t Ignore the Risks
Don’t just buy any home with delinquent taxes. There are always substantial risks when buying real estate. Novice buyers can quickly find their way into trouble. The pitfalls are real. Do your due diligence and research ahead of time. Consult with the experts from Tax Sales Hub for more information.
Tip #2: Always lead with your head
Your heart may tell you you’ve found the perfect home with delinquent taxes. But lead with your head. Look at data and metrics.
The fundamentals will tell you whether a listed property is worth investing in, regardless of why you’re looking to buy tax delinquent properties. Take the emotion out. Rely on data.
Tip #3: Drive to the site
You cannot walk in to inspect a home with delinquent taxes, but you can drive to the site and inspect it from afar. No one can prevent you from looking at it from public property, such as the street.
Have a close look at what you can from the outside. Note the state of the neighbourhood, yard, structure, and any other apparent details. Look for signs of damage or mould. See if the property is occupied.
Tip #4: Research the neighborhood
Just like you will the house, research the neighbourhood. Even if a house with delinquent taxes has issues, if it’s set in a neighbourhood where property values are soaring, you may be able to re-sell it for a profit just based on the lot’s location.
Tip #5: Become an expert
Study and study hard. Buying a home with delinquent taxes is best suited to individuals who have strong knowledge of investing and real estate. If your knowledge is outdated, put it on your student hat and start learning. This is your best bet at identifying which properties carry the most risk.
Tip #6: Don’t bid the minimum amount
The minimum amount may look like a deep discount based on a property’s assessed value, but the competition is fierce. You’re facing not only other potential homebuyers but also landlords, house flippers, sometimes banks, and businesses looking to buy property.
Bid what you think the property is worth to you because it will likely sell for far above the minimum amount.
Tip #7: Don’t overbid in a bidding war
If you find a tax sale home you like and there’s a bidding war for it, know when to bow out. When you bid too much, you stand to lose.
The property could require more initial upkeep than predicted, increasing your total costs. Always leave a little room financially, and do not overbid.
Tip #8: Predict that there will be unforeseen expenses
Until you walk in after you get the winning bid and inspect your new home, you don’t know what’s there. Unforeseen expenses are not unusual. More repairs and renovations than expected. Clean-up left from a previous tenant.
Current occupants that need to be evicted. Any of these situations could happen, but fortunately, if you plan, you can be ready to factor them into your budget.
Tip #9: Take the time to do a title search
A title search will tell you if there are any other liens or claims on the property. If there are, don’t buy it. This is because those liens or claims would transfer to you as the new owner and increase your overall bill for the property.
Tip #10: If you win, do an inspection as soon as you can
If you win, don’t wait to look at your new home. Have an inspection done as soon as you are legally allowed to. While you won’t be able to return
Tip #11: Be ready to give up the tax sale property
Most homeowners redeem their property before foreclosure starts, during the grace period following a tax sale. This would return what you put in, plus interest. Don’t be surprised if you do not walk away with physical property.
Tip #12: Do not renovate during the redemption period
Find out how long the redemption period is. During the redemption period, hold off on most renovations. This is because any renovations you do, you will not be reimbursed for any of these costs if you have to give up the home. That said, if the roof is leaking, patch it.
Cut the grass but not the trees. You can change the locks, board the windows, and do anything else to keep the property safe and secure. However, wait for the more expensive renos until you have full ownership and all other claims are handled.
