When property taxes go unpaid, the municipality eventually takes over those properties and sold off to recoup these costs. If you are an investor seeking to invest or buy a tax-sale property, hundreds go on sale yearly. You should understand what to expect, your strategy, and how tax sales work.
Here’s a buyer’s guide to tax delinquent properties:
Understand the Risks
A tax-delinquent property may be the best purchase you’ve ever made, but it can also be the worst. Tax sales carry a lot of risk, with a chance for legal disputes and not knowing the full condition of the property. Be prepared financially and mentally for whatever may come.
Your Municipality Sets the Rules
Different regions have different rules. Not all tax sales are the same. Read up on the unique rules governing tax sales in your area to understand better how you can bid on these homes.
Find Tax Sale Listings Online
Local tax sales listings are easy to find online. Check any local government website for more information on properties currently up for bid.
Inspect Tax Sale Listings Regularly
When you first look at the tax sale listings, you may not find the right tax-delinquent property. If not, wait until the next sale and look again. Every tax sale brings with it new investment opportunities.
Properties Are Sold As-Is
Most tax-delinquent properties are sold as-is. As you are not the owner, you cannot inspect the home until you purchase it. Try to do your best to use online resources to determine the value of a property to you.
Observe the Property
From the public road, observe the property. See what you cannot see just from its exterior. Look for potential liabilities, such as environmental or structural issues, that require an immediate fix.
Research the Neighborhood
See what the lot is worth and what the neighborhood’s reputation is. See if there are development plans that could positively or negatively impact property value and what you want from it.
Evaluate a Home’s Resale Value
Calculate a potential resale or rental value even if you don’t intend to sell. These numbers will help you determine what’s profitable and what makes the most sense when putting a bid on tax-delinquent houses.
Check for Liens
Run a title search and check for liens or encumbrances. Most liens are removed from a property once it goes up for a tax sale, but not all are. Ensure that what you’re bidding on is free and clear.
There May Be Renovations
Budget for possible renovations. Many tax-delinquent properties are not in good standing and require repairs, be they roofing, plumbing, or structural repairs. These can be costly. Set aside some funds to cover what you discover post-sale.
Don’t Overpay
There is always a risk that a tax sale house could be much more expensive than you thought—the quality of your research and how you calculate value matter. Do not bid emotionally. Bid by the numbers and avoid overpaying.
Avoid Bidding Wars
If you’re buying a tax sale house by public tender, bidding is done by mail. You make one bid, and you’re done. If you’re bidding by public auction, the competition can heat up. Avoid bidding wars at every turn.
Secure Financing
Secure financing or cash for a quick, painless purchase well in advance. Many tax auctions and tax sales by public tender require immediate payment. There is no time to arrange a mortgage. Bring funds to the deadline or risk losing a property on which you have been deemed the ‘highest bidder.’
Plan for Holding Costs
If you cannot immediately buy a property or if it’s not sellable, you may still be responsible for future property taxes, insurance, and maintenance costs. Budget accordingly.
Let the Grace Period Roll Over
Before you make any major changes to the property or invest further in a tax sale house, let the prior owner’s grace period roll over and have them evicted if they are still on the premises. Only then should you start to renovate and continue putting money towards tax-delinquent property.
You May Have to Evict
If the prior tenant has refused to leave, you may have to evict them. Talk to a real estate lawyer. Pursue legal avenues to do this. Know your rights and their rights and how to get the former tenants or owners to leave as best they can.
Have a Lawyer
Even if it’s just to know who to call, have a real estate lawyer to help you navigate complex tax sales. A lawyer can advise on how to pursue liens and other factors that could impact your property ownership rights.
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