For skilled real estate investors willing to do some heavy research and bet smartly, tax sale properties are a high-risk investment tool that can yield serious benefits. Tax sale properties are homes seized by the government due to unpaid taxes and fees and then sold to recoup all outstanding taxes owed. These properties are priced to sell. However, they can come with monumental complications if you don’t research what you’re getting into. Here are the benefits of investing in a tax-sale property.
Benefit #1: Purchase property at a discounted price
The most obvious advantage to investing in a tax sale property is that you can buy a home at a much, much lower price than what it would normally go for on the open market.
The price difference is often significant. This is what will immediately catch the eye of most people. However, research ensures you don’t disappear after buying a headache. You’re buying a property unseen at a tax sale, so your expenses can rise quickly.
Benefit #2: Smart buyers will be the biggest winners
Buying tax sales Ontario will benefit the smartest buyers. Some tax sale properties could come with a claim on it or a previous homeowner who refuses to leave, permanent damage and repairs that need to be corrected, and more.
While you aren’t legally permitted to inspect the home before the sale, you can do a title search. You can look at it from a public road, inspect the area, and ask around. By doing this, you avoid the bad and know where to find the good.
Benefit #3: You skip the usual real estate buying process
Tax sale properties are either purchased at auction or public tender. The government just wants to collect its taxes and fees. They’re looking for a quick sale.
You get to skip the normal real estate buying process as a buyer. No negotiating with the seller. No waiting for a close or dealing with an appraisal or inspection. No need to arrange finance. It’s a fast, simple way to buy real estate where you can completely navigate what you’d normally go through to get your hands on a home.
Benefit #4: There is less competition for a tax sale home
While there are usually multiple bids for any given tax-sale property that will drive up the cost, you’re still not facing as much competition as you would if the home was on the market.
As you bid in the competition, you decide what it’s worth. If you end up outbid for one property, that’s alright. Chances are, you will find another that week, next month, or the month after. There are lots of new tax sale properties available every month Canada-wide.
Benefit #5: Potential high return on your investment
Due to the low investment amount, you stand to make a greater profit selling a tax sale property than you would if you intended to buy a regular property and flip it. You may wish to make a few simple upgrades to your tax sale property or none at all.
Either way, you stand to make a profit reselling or, assuming it’s livable, turn it into a rental property. You may also choose to use it as a primary residence. Either way, the return is strong.
Benefit #6: Tax sale properties are often in high demand
Though not always the case, many tax-sale properties are in markets with a lot of demand. Investors can often resell easily or turn their tax-sale property into a rental.
If you utilize it as a rental, that’s monthly cash flow and a steady stream of income you can use to reinvest, accumulate equity, and build wealth. Although being a landlord is not passive income per se, it’s another way to profit from tax sale properties if you don’t intend to sell right away.
Benefit #7: You may be able to turn it into your dream home
Some investors end up hanging on to their tax-sale property for themselves. Because the buying cost is so much lower, that frees up more of your cash to invest in repairs and renovations.
Depending on the neighbourhood, square footage and land area, and amenities, you may be able to turn a tax sale property into your dream home. Finding the right tax sale can be easy if you aren’t yet a homeowner and don’t mind taking a hands-on approach with a fixer-upper.
Benefit #8: Diversify your investment portfolio
Any home is an investment. If you have other investments – such as stocks or crypto – cheap tax sale properties help you to diversify further. Tax sale properties help spread out your financial risk and are another asset class to explore.
While there’s a certain amount of research involved before buying, you can start building wealth after you acquire a property, and it’s in your hands. Diversification like this protects your wealth if something goes awry with one investment.