Tax Sales in Ontario - Do They Work?

by Paola Breda for

September, 2006

Much has been said about tax sales. Mostly, you hear all the negative things: “ I tried a few times and nothing worked”, or “All the properties are duds”, and of course, “nothing good would end up in a tax sale”.

I have learned, just like in all other parts of life, to disregard these ‘negators’. They are everywhere, and no where more prominent than in the field of real estate. Everyone has something to say, and what they have to say is negative. It’s always negative with those types of people. It seems they’re the experts and they know it all. And of course, what they know is that something doesn’t work, or isn’t right.

Instead of following that methodology, I have learned to look at things differently. In real estate, you have to learn to see what isn’t - especially if you want to win in real estate. In other words, you have to learn to see how to add value that isn’t yet there. If you learn that little secret, you stand to make thousands in real estate. Like all the gurus say, adding value is a way to instantly make thousands. For example, if you purchase a small bungalow, but immediately after closing you turn it into a legal duplex (you’ve done your research before you purchase and you know that you can do this), you will have added thousands of dollars of value to the property. If you look at a property in cottage country and it has a dilapidated boathouse, you know you have a gem. You’ve done your research and you know boathouses aren’t allowed anymore, but with an existing footprint, even if its dilapidated, you can ‘renovate’ - and you have a new boathouse that is no longer allowed - adding thousands of dollars to your property value. It is this skill and attitude you must strive to learn if you want to make thousands in tax sales.

Many people will view the properties for sale in tax sales, and immediately overlook their value, because of a variety of diverse reasons. What they will fail to see is the invisible value you will add.

You will have learned to see value that is hidden. If you find a non-buildable rural lot, you will research it to see if it can easily be changed to a buildable lot. If you find a cottage property without a road, listed at tens of thousands of dollars below value with a road, then research the cost of building a road. While these may seem like impossible scenarios, they are actually not.

One example of a purchase we made was a small 2 bedroom 1 bathroom home in a small Ontario city for $12500.00 Other people saw that the house was in rough condition, there had been no hydro for several years, and there were squatters in the back yard. We saw a house that could be repaired, electrical that would need to be redone anyways, and squatters we could throw out. We had researched all of these issues in depth before we offered the tender for $12500.00. The taxes outstanding were about $7000, but we wanted to win the tender so went in considerably higher - at least for a tax sale. An investor friend put in roughly about the same amount of money in work. A few months later, we split the profits. It sold quickly for $60k, which meant we effectively doubled our investment in less than six months!

Another example was a rural lot that was not buildable. It was only 8 acres in area, but the lot requirement for the area was 10 acres. We gambled $4000 on the fact that if we took it to committee of adjustment, we would get a variance to build. By tendering $4000, we effectively bought the lot at $500 per acre! Imagine that, $500 per acre, on a rural property about 5 minutes away from a small city, in an area of nicer homes, we could have property. We eventually put a small pre-fab home on the property with third level consumer financing (it didn’t matter that the interest was high, as we knew it would sell quickly). Our pre-fab small home cost $50k, our original investment was $4k, and the value of the home based on our certified appraisal was $88k. This means immediately after the pre-fab home was installed, our costs had been $56k, including legals and interest, but our appraised value was $88k, and our ultimate selling price was $92k, a quick profit of approximately $36k! And because it was a pre-fab home, we didn’t even have to wait long for it to be installed, nor did we have to worry about building contractors, or be on site. It was about 12 hours of work in all, and we gained $36k. Can you figure out how much that amounts to per hour? We could never work for that money in the traditional way. Not even a lawyer or doctor makes that much in an hour!

Tax sales do work. You just have to ‘see’ the value added and figure out how to make it work. There are many viable options that work well and make you hard cash quickly! Tax sales in particular, allow the ‘entry level investor’ who is willing to work to make their first deals, and research to ensure that their due diligence is complete. If you’re creative, they can make you thousands. Are you up for it?