3 Things to Know Before Buying a House with Delinquent Taxes

Abandoned two story brick house with some boarded up windows.

Real estate is often considered an investment, especially in one’s retirement. You buy a house, pay on it for 30 years, and when you’re in retirement, you can sell and add the cash to your retirement fund. Or, your heirs can sell and add the money to their inheritance. However, real estate isn’t always an investment. One of the ways real estate becomes a liability for homeowners is when they can no longer or neglect to pay their property taxes. When this happens, investors are waiting to buy the property.

3 Things to Know Before Buying a House with Delinquent Taxes

When real estate becomes a liability for someone, that property can be a boon for investors. However, turning a profit on a house with delinquent taxes isn’t as easy as it sounds. So, before you jump into this business venture, you should learn about the possible pitfalls.

There May Be Other Outstanding Bills

If someone has fallen on hard times and cannot pay their property tax payment, they likely have fallen behind on other expenses such as their mortgage and utilities. In addition, they have likely not maintained the house since money is tight. As a result, the house may have multiple interior problems due to a lack of maintenance. However, you most likely can’t look inside the property before it goes up for auction, and you must bid on it.

You Must Pay the Taxes Upfront

If you buy a house with delinquent taxes, you must pay the tax bill immediately or within a few days of obtaining the property. Banks typically do not offer loans for past-due property taxes, so you’ll need to pay the total amount with your current funds. When the homeowner’s real estate becomes a liability, they may go years without paying property taxes, meaning you may need to pay tens of thousands of dollars upfront to settle the tax bill. You could start this real estate venture in the negative from the beginning thanks to the outstanding tax bills.

Often the Properties Never Make It to Auction

Man in front of a computer thinking of a house and payments.

If you’re in the market to buy a house with past due property taxes, know that many properties never make it to auction. If the homeowner files for bankruptcy or manages to pay the taxes before the house goes up for auction, the home is no longer available.

You may have spent months researching potential homes you want to buy, only to have them never make it to auction because the back taxes have been resolved.

Final Thoughts

When real estate becomes a liability, property owners often cannot pay their taxes. As a buyer, you can relieve the property owner of the burden of their home because these homes are often difficult to sell. However, know that these properties have many potential financial issues that can make what seems like a good investment a money pit that leaves you deeply in debt.

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