Similar to many rental property investors, your quest to save money may have you considering buying real estate at an auction. Yet, there are numerous factors you need to be aware of before your first auction. Buying income properties at auction is more dangerous than getting them in other ways. Although having great information and a strategy can help reduce some of that risk, real estate auctions will never be suitable for the cowardly – or risk-unwilling – investor. Those comfortable with some risk continue to peruse to become familiar with the basics of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The main thing to be aware of before buying an income property at auction is that the process implies risks and benefits. While houses sold at auction are priced below market value, many are in poor condition or have significant issues requiring extensive repairs. You may only be able to inspect the property after you buy, so this is one risk that may be difficult to mitigate.
Other risks of buying at auction incorporate the potential to overbid without giving much thought and face potential delays after purchase as the property works its way through different organizations, state or country redemption periods, and more.
Then again, auctions are one place to find real bargains on rental real estate. When you buy a home at a considerable discount, you can increase your cash flows and overall return on investment. One more benefit is that you can take ownership of the property quickly. Much of the time, auctions can transfer title to a home within 30 days, permitting you to quickly begin planning for your first renter. That shows your property could begin generating rental income a lot quicker than a traditional sale.
How Real Estate Auctions Work
The process of buying a property at an auction begins by finding real estate auctions. This should be possible by searching online auction websites or databases or working with a real estate agent specializing in auctions. When you discover a potential property, the following action is to learn as much as possible about the property. Make sure to do a thorough comparative market analysis and evaluate the property’s potential as a rental home. If conceivable, walkthrough or arrange an inspection of the property. If that is not achievable (and frequently it isn’t), you could drive by and look in the windows. It would be best to conduct your research. Check for any occupants, liens, or other potential complications that may create roadblocks to ownership.
To bid competitively at an auction, having a lot of cash on hand and financing lined up before you start to bid is vital. Much of the time, to buy a property at auction, you will require no less than 10% of the selling price for a deposit, the capacity to pay the remaining balance right away (or within a matter of days, at times), and cash for administrative fees, survey costs, and insurance. Also, there are different types of auctions, so make certain to completely review all the auction rules and be ready to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, you must enroll and present a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, plan to show up about an hour before the auction begins to check in and get your official bidding card, which you will utilize for bidding. You’ll log in to the auction website to bid if the auction is online. When the bidding starts, you should determine exactly how much you can offer before the property is no longer a bargain. If you can avoid a bidding war, your risk of paying too much will fundamentally decrease.
You will be aware within minutes, regardless of whether you’ve won your auction or not. If you don’t win, you will get a deposit refund. Nonetheless, assuming you win, you might have to pay for the property in full immediately after the sale. Some auctions expect you to bring cash or money order to finish your payment right away. Others will give you until the following day or a few days to present the expected funds. Inability to do so will bring about losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so finishing payment as mentioned is vital. Then, despite the fact that you won the property at auction, you will still go through escrow and closing, just as you would when buying any other property.
Developing your investment portfolio – through auctions or some other methods – can be a challenging but satisfying undertaking. Real Property Management Impact provides market evaluations, and guidance on potential real estate purchases in Durham and close by. Contact us online or call at 919-439-8989.
Originally Published on Apr 2, 2021
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.