How to get your hands on cheap land-bargain hunting at tax sales
It's an unreliable Monday afternoon on Georgian Bay, way past summer, and the cops are cruising the 400. So why have four people taken the day off work to come to an uninspiring, fluorescent-lit office in Port Severn?
Two words: Tax Sales. The dream of owning a property you couldn't normally afford. (Or, in some cases, buying one cheap and selling it to someone who can afford it.)
Here's how it works. Remember that big property tax bill you get once a year? Some property owners just don't pay that bill. Some people don't pay it for years and years. Maybe because they don't have the money. Maybe because it's not exactly clear to whom the property belongs. Maybe because they've moved to Melbourne and forgotten all about it. In any case, eventually the municipality gets tired of waiting for its money. Once three years have passed with no payment, it can register the property as being in tax arrears. It then has 60 days to do a title search and contact anyone connected with that property. The laggards have a year to pay up though sometimes the municipality will agree to set up a longer payment program. We don't want to take people's property, says Bonnie Munro, treasurer of the Township of Georgian Bay. Tax sales are time-consuming and may not get the results desired, she points out. We just want to get the taxes. So we really try to work with people.
But Island 65 in Georgian Bay, Township of Tay, County of Simcoe, was bought for $40 in 1912, and it looks like the owners have long since lost interest. So today Munro is selling it off.
The sale was publicly listed on August 30, 2003. So far, the tax owing and the expenses of the case come to $37,358.48, so that is the Minimum Tender Amount the lowest bid allowable. Bidders must submit offers ahead of time, plus a money order, bank draft, or certified cheque for 20 per cent of their bid. They can either come to the reading of the bids or wait to be informed.
There are seven bids altogether, but as Munro prepares to read them out, there are only four people at the table just enough for suspense. The market is hot these days and Port Severn is about as close to Toronto as cottage country gets. Others put the market value of Island 65 at around $78,000. A similar island nearby was recently assessed at $100,000, and the island next door is listed for sale at $249,000.
Munro opens the bids, checking with tax collector Patricia Potter that the deposit cheques satisfy the 20-per-cent requirement. The first three tenders are from absent bidders: $54,100, followed by $41,501, then $70,100. And that's the end of the story for the four men present. Their bids fall short at $70,007, $43,000, $56,002, and $60,100. (Instead of tendering an even amount, some bidders tack on a few extra dollars; anything to give them an edge.) In 10 minutes, it's all over. In half an hour, they've got their deposits back and are heading for their cars.
It all looks quite simple. But even if all you want is a little lot on which to build your dream Property, buying through tax sales consists of homework, homework, and more homework.
That's the conclusion of Bernie Hildebrandt, one of the disappointed bidders for Island 65. Hildebrandt got wise to tax sales when he started thinking about buying a family cottage or rural retreat. Hildebrandt is in serious danger of becoming a tax sale hobbyist, joining the small band of regulars who show up wherever bids are opened, comparing notes and lamenting the ones that got away. Kevin Walters, for example, has been buying properties through tax sales for more than 10 years and now owns dozens, most of them in cottage country. Walters is hooked on the thrill of the chase and the investment possibilities. Finding the right properties and figuring out what to bid, is fun, he says. With a reasonable amount of caution, you'll never lose. All you need is an understanding of the rules and a lot of persistence.
The biggest challenge is just getting the information that there's a sale, says Hildebrandt. There are companies (like the Canadian Tax Sales Newsletter) that put out newsletters listing all the sales. Usually, there's about a five-week gap between the first ad and the sale.
Once you've spotted the sale, the next step is to call or e-mail the municipality and order the information package. And while you're on the line, see if there's anything else the office staff can tell you about the property the taxes, the zoning, what it looks like.
Once he has the information package, Darren Gingras contacts a lawyer to do a title search. While the municipality undertakes this as part of its investigation, the responsibility for making sure the title is clear rests with the purchaser, warns Gingras, an investment coordinator with Property Possibilities, a tax sale company who publishes the Canadian Tax Sales Newsletter. Obviously, the previous owners got into these extreme situations, so you want to make sure there's not something lurking back there waiting to bite you such as right-of-ways, outstanding debt, toxic waste, an unknown heir, or a divorced spouse ready to pounce. A municipal title search might not be extensive enough to bring up everything, whereas a lawyer who's paid to do it will be more thorough.
Walters' experience paid off one late November, long after the boats were put away, when a municipality in the Kawarthas was selling off two islands on Lovesick Lake. He consulted an aerial map, drove up, surveyed the islands from the shore, and thought, Wow, how did they remain untouched for so long? In the end, Walters was only one of two bidders. Some day, he'll build himself a cottage on one or the other.
Once you've done all this work, how do you come up with a bid that has even a chance of winning, especially when the market for Real Estate property is so hot? Naturally, you'll want to check selling prices for similar properties in that area. Once they've come up with an approximate market value, most experienced buyers develop a formula for what they're willing to pay, and stick to it, regardless of how attractive any given property may be. If I can get it for between one-third and a half of what it's worth, it's a good deal, says Walters.
Since the successful bidder must first deposit 20 per cent, then produce the balance within 14 days, actually coming up with the cash can be a challenge, points out Fred Roisin. The best thing to do is get some money on hand and wait for the right property. You may wait six months, you may wait a couple of years, but your turn will come.
Tax sales are not for people looking only to find the perfect investment property and live happily ever after. But if you enjoy the game of real estate and have the patience to wait for a bargain, it can be rewarding. And, says Walters, it doesn't cost anything to bid.
By Diane Forrest
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