Similar to many rental property investors, you may be searching for a great value and thinking about buying real estate at an auction. Yet, you need to know a lot before your first auction. Buying income properties at auction is far less safe than getting them by other means. Even though having sound information and a strategy can help reduce some of that risk, real estate auctions are not for investors who are scared or choose not to take risks. Those comfortable with some risk continue reading to discover the fundamentals of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
Prior to buying an income property at auction, you need to understand that there are risks and benefits to the process. While houses sold at auction are evaluated below market value, numerous are in poor condition or possess major problems 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 inadvertently bidding too much in a hurry and facing potential delays after purchase as the property goes through several groups, state or country redemption times, and so on.
However, auctions are a great 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 total return on investment. Another perk is that you can take ownership of the property quickly. Usually, auctions can transfer title to a home within 30 days, so you can start planning for your first renter straightaway. That implies that your property might start generating rental income much sooner compared to a traditional sale.
How Real Estate Auctions Work
The process of buying a property at an auction begins by finding real estate auctions. This can be achieved by searching online auction websites or databases or working with a real estate agent specializing in auctions. As soon as you locate a potential property, it is important to know as much as you can about it. Make sure you conduct a thorough comparative market analysis and assess the property’s potential as a rental home. If achievable, walkthrough or conduct an inspection of the property. If that is not achievable (and often it is not), you could drive by and peek in the windows. It would be prudent for you to acquire additional knowledge. Verify that there aren’t occupants, liens, or other concerns that could make roadblocks to ownership.
To bid competitively at an auction, you should have loads of cash on hand and financing aligned before you begin bidding. Normally, to buy a property at auction, you will need a minimum of 10% of the selling price for a deposit, the ability to settle the outstanding balance directly (or within a matter of days, in some cases), and cash for administrative fees, survey costs, and insurance. Furthermore, there are different types of auctions, so be sure to thoughtfully review all the auction rules and be ready to comply with them.
What to Expect at an Auction
Before bidding in a real estate auction, you should register and deliver a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, try to get there an hour 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 online. As soon as the bidding starts, you need to ascertain precisely 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 significantly decrease.
You will catch on in a minute whether you’ve won your auction or not. If you don’t win, you’ll acquire a deposit refund. Yet, if you win, you may have to pay for the property in full immediately after the sale. At some auctions, you need to bring cash or money order to clear your payment at once. Certain individuals will allow you till the following day or a few days to remit the funds. Not doing this will bring about losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so it is imperative that you remit the payment as requested. Then, 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.
Increasing your investment portfolio – through auctions or any other approaches – can be a challenging but gratifying endeavor. Real Property Management Catalyst offers market evaluations, and recommendations on potential real estate purchases in Tampa and close by. Contact us online or call at 727-202-9077.
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.