Competing against other investors, an auctioneer encourages fast and emotional bids, which are often thrown up left and right. Especially if it’s your first time, it’s easy to get swallowed up and throw your strategy out in frustration.
Here is how to stay calm and prepare for a tax sales auction.
Predetermine Your Budget
Set a maximum bid number that you stick to no matter what. Recognize that a bid above that potentially leads to financial regret and strains you to the point where property ownership could prove unprofitable.
Tax Sales Auction Rules
Track auction dates, rules, and regulations. Ensure you are fully registered for the event. Subscribe to any newsletter your municipality may offer, or consider joining a third-party website for tax sales auctions, which can provide you with more information.
Keep Your Money Accessible
Ensure your financing is accessible. Bring it to the tax sales auction in cash, money order, or certified cheque. If you are declared the winning bidder and do not have the funds to secure your bid, you could forfeit the property.
Look For Hidden Gems
Review the listings for tax delinquent properties to seek out a hidden gem. These may be properties in less competitive areas, properties struggling with lower bids, a larger lot with untapped value, or a house with redevelopment potential.
Focus on Lesser-Known Properties
Experienced investors will likely be at a tax sales auction and bidding on high-demand properties. If you’re a beginner with tax sales, you likely won’t be able to compete dollar-for-dollar. That said, you may be able to compete on lesser-known properties with fewer bids.
Check Property Conditions
View a tax sale property in person from a public area. Look for signs of neglect, accessibility challenges, or other difficulties that could increase the cost of ownership.
Analyze Local Real Estate Trends
Research local property values to determine the potential ROI of a tax-sale home. Consider how similar properties look, what they have sold for, and what the value of the neighbourhood is. Amenities, schools, transit, and shopping centers can contribute to a property’s value.
See If It’s Presently Occupied
Most tax-delinquent properties are still occupied, but not all. Check beforehand. If there is an occupant, you must pursue a legal eviction once the tax sale is complete.
Connect with a Real Estate Lawyer
A real estate lawyer with experience in real estate and tax sales can answer questions, guide you in reviewing contracts, and handle title issues.
Run a Title Search
You don’t need a lawyer to run a title search to discover if there are any liens or encumbrances attached to a property. A title search can advise you on the complex legalities of owning a specific property. It can help you decide whether a tax-delinquent house is worth bidding on.
Profit Over Competition
When bidding, focus on a property’s investment potential rather than the competition. If the competition is driving up the price and you don’t agree with the valuation, don’t hesitate to pull out and cease bidding.
Bring a Friend
Consider bringing another person with you to the tax sale auction to help you reel in your bids if you have doubts about being able to think clearly against the competition. This other person could be a friend, family member, peer investor, lawyer, or real estate expert.
Bid on Multiple Tax Sale Homes
Consider having a backup tax sale house if you are outbid on your first pick. Ensure you do your due diligence on everything you bid on.
Managing Multiple Homes Is Hard
Ideally, you only want to walk away from a tax sale with one property, not multiple. This is because each tax sale home carries major risks. An investor doesn’t know what they’re dealing with until the home under their ownership is put through an inspection. Multiple tax-delinquent properties being sorted out simultaneously puts a lot of financial strain on an investor, possibly rendering them unable to manage both financially.
Be Nice with Other Buyers
Network with other investors at auctions. This could lead to future partnerships or help with specific tasks at a tax sales auction.
Know When to Walk
If prices exceed your limit, stop bidding. Stop if an emotional attachment to a property drives your bids beyond your budget. Know when to walk away. Most tax sale auction attendees walk away with nothing. It’s normal and to be expected. There will be other opportunities. Preserve your capital.
