Similar to several rental property investors, your search for a fantastic deal may lead you to think about buying real estate at an auction. But there are several things you should understand before your first auction. Buying income properties at auction is far harder than buying them in other ways. Even though having great information and a strategy can help reduce some of that risk, real estate auctions will never be right for the fearful – or cautious about risk – investor. For those comfortable with some risk, stay tuned to discover the basic rules of buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The first thing to know before buying an income property at auction is that the process involves risks and benefits. While houses sold at auction are priced below market value, many are in poor condition or have serious 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 include the potential to overbid in the heat of the moment and face potential delays after purchase as the property works its way through various entities, state or country redemption periods, and more.
Alternatively, the ideal way to find real bargains on rental real estate is by auction. When you buy a home at a considerable discount, you can increase your cash flows and general return on investment. One more perk is that you can take ownership of the property quickly. On many occasions, auctions can transfer title to a home within 30 days, so you can begin planning for your first renter as soon as possible. In this regard, your property might begin generating rental income much faster than a typical sale.
How Real Estate Auctions Work
The method of buying a property at an auction commences by finding real estate auctions. One way of doing this is by searching online auction websites or databases or working with a real estate agent specializing in auctions. Once you’ve discovered a potential property, your next step is to discover as much as possible about the property. Don’t forget to conduct a thorough comparative market analysis and analyze the property’s potential as a rental home. If attainable, walkthrough or organize an inspection of the property. If that isn’t doable (and often it is not), you drive by and peek in the windows. It would be best if you did your research. Assess any occupants, liens, or other possible challenges that may create roadblocks to ownership.
To bid competitively at an auction, possessing plenty of cash on hand and financing arranged before you place a bid is crucial. When buying a property at auction, you will often need to pay 10% of the selling price for a deposit, the ability to complete the outstanding balance right away (or within a matter of days, in some scenarios), and cash for administrative fees, survey costs, and insurance. Moreover, there are different types of auctions, so don’t forget to carefully review all the auction rules and be prepared to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, you must register and deliver a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, you are advised to get there before the auction starts to check in and get your official bidding card, which you will utilize when you bid. You’ll log in to the auction website to bid if the auction is on the internet. Once the bidding initiates, you need to be aware of precisely how much you can offer before the property eliminates its bargain. If you can avoid a bidding war, your risk of paying too much will considerably be decreased.
In just a few minutes, you will be able to determine if you won your auction or not. If you don’t win, you will get a deposit refund. However, if you triumph, you may need to pay for the property in full immediately after the sale. Some auctions require you to bring cash or money order to complete your payment instantly. Some will allow you to submit the necessary funds throughout the course of the following day or several days. Failure to do so will bring about losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so completing payment as requested is critical. Following that, even though you won the property at auction, you will still go through escrow and closing, just as you would when buying any other property.
Building your investment portfolio – through auctions or any other avenues – may be a hard but rewarding process. Real Property Management Lakeview delivers market evaluations, and guidance on possible real estate purchases in Argyle and adjacent regions. Contact us online or call at 940-323-0505.
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.
