What to Know About Tax Sale Properties

What to Know About Tax Sale PropertiesTax sale properties enable investors to own properties at discounts. They are viable for experienced investors or those willing to renovate.

However, for the average homebuyer, the uncertainties and financial risks associated with tax sales may outweigh the potential benefits. You need to conduct due diligence to avoid surprises later.

Municipalities conduct tax sales to recoup unpaid property taxes. Homes that end up in tax sales share characteristics that distinguish them from typical real estate transactions. While they offer an opportunity to acquire property at below-market prices, they also carry inherent risks.

Insider Tips for Tax Sale Properties

To avoid mistakes, real estate investors should understand what to look for. Here are the essential traits of tax sale properties.

History of Delinquent Taxes

The most defining characteristic of tax sale homes is their history of delinquent property taxes. Homeowners facing financial difficulties may fail to meet their tax obligations, leading local governments to place liens on their properties.

When taxes remain unpaid for an extended period, the municipality auctions the property to recover the owed amount. In most provinces, when a property is sold at a tax sale, the accrued taxes are at least in their third year of arrears. The municipality has also reminded the owner to pay repeatedly, but they must still comply.

Legal Encumbrances and Liens

Delinquent properties often come with legal encumbrances beyond unpaid taxes. Property owners struggling to pay taxes, in most cases, also face other financial issues. Buyers must prepare to handle additional liens, such as mortgage, utility, or even creditors’ judgments. You must conduct thorough due diligence, including a title search, to understand all the obligations attached to the property.

Sold As It Is

One of the most significant drawbacks of tax sale properties is the inability to inspect the interior before purchase. While some jurisdictions offer exterior inspections, buyers generally remain blind to property conditions. Deterioration, structural issues, and hidden repairs can significantly increase renovation costs.

A good investor will conduct due diligence and get as close to the property as possible. Talk to neighbours to learn about the property’s condition beyond what you can see.

High Risk

For investors, tax sale properties offer significant potential for return on investment. If acquired cheaply, these properties can be renovated and sold at a profit or rented out for a steady income.

However, the success of the investments depends on due diligence and the buyer’s ability to manage any issues the property may have. If you are a new investor with limited capital, this type of property may cost a significant amount to sell for a profit before making a sale.


One of the primary attractions of tax sale properties is the potential for significant discounts compared to market value. Municipalities usually set the starting bid at the value of unpaid taxes, plus penalties. This is substantially lower than the property’s assessed value. Buyers can acquire real estate at a fraction of the cost, though it comes with risks.

Financing a tax-sale property can be more challenging than conventional real estate transactions. Many traditional lenders are unwilling to finance properties bought at tax sales due to the inherent risks. Buyers may need to explore alternative financing options, such as hard money loans, or be prepared to pay in cash.

Market and Neighborhood Variability

Contrary to popular belief, tax-sale properties exist in various market conditions and neighbourhoods. They are not confined to distressed areas. Homes in desirable locations with strong real estate markets can also appear in tax sales.

Location variability means buyers must carefully evaluate the neighbourhood and local market trends to ensure they make a sound investment. During your research, consult a real estate agent to determine the general market’s performance.

Auction Process

These properties are usually sold at public auctions. Depending on the jurisdiction, these auctions can be held in person, online, or through sealed bids. The auction process is usually very competitive, with multiple bidders driving up the final sale price.

Prospective buyers should familiarize themselves with the specific auction rules and procedures of the municipality holding the sale. Always walk into a tax auction with a set budget for the property. Without one, it is easy to get lost in bidding wars and buy overpriced properties. If this happens, you may have to sell the property at a lower cost to avoid making a profit.

Redemption Periods

In many areas, homeowners have a redemption period during which they can reclaim their property by paying back taxes, interest, and any additional fees incurred. This period can vary widely, from a few months to years.

For instance, property owners in British Columbia have a one-year redemption period starting at the auction. Buyers must know that purchasing a property at a tax sale does not guarantee immediate ownership and occupancy if a redemption period is in place.

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