If you seek an exceptional bargain on real estate, you might be thinking about buying real estate at an auction like numerous rental property investors. But before your first auction, there are several factors you should know. Buying income properties at auction is far more dangerous than acquiring them through different means. Even though having comprehensive information and a strategy can help reduce some of that risk, real estate auctions will never be appropriate for the indecisive – or unwilling-to-take risk – investor. Those comfortable with some risk continue reading to discover the fundamentals of effectively buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The principal consideration prior to buying an income property at auction is that the procedures incorporate risks and benefits. Even though houses sold at auction are valued below market value, numerous are in poor condition or have significant complications requiring extensive repairs. You may only be accepted to inspect the property after you buy, so this is one risk that may be difficult to mitigate.
Other risks of buying at auction encompass the likelihood for impulsive overbidding, face potential delays after purchase as the property works its way through numerous institutions, state or country redemption periods, among others.
On the flip side, one great venue to find real bargains on rental real estate is at auctions. When you buy a home at a considerable discount, you can increase your cash flows and overall return on investment. Another plus is that you can take ownership of the property quickly. In many instances, auctions can transfer title to a home within 30 days, enabling you to commence planning for your first renter instantly. In this case, relative to the conventional sale, your property might begin generating rental income sooner.
How Real Estate Auctions Work
Finding real estate auctions is the initial phase in the procedure of buying a property at an auction. One method to achieve this is by searching online auction websites or databases or working with a real estate agent specializing in auctions. After choosing a potential property, the subsequent step is to conduct a thorough study of it. Make sure you conduct a thorough comparative market analysis and examine the property’s potential as a rental home. Ideally, do a tour or schedule an inspection of the property. If that isn’t practical (which is typically the case), you may drive past and observe through the windows. It would be beneficial if you examined it. Examine the property for any occupants, liens, or other possible complications that may create roadblocks to ownership.
To bid competitively at an auction, it is important to have lots of cash on hand and financing arranged before placing a bid. In many cases, to buy a property at auction, you will need around 10% of the selling price for a deposit, immediate availability of funds to settle the remaining balance (or within a matter of days, in specific circumstances), and cash for administrative fees, survey costs, and insurance. What is more, there are different types of auctions, so be sure to carefully review all the auction rules and be ready to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, registration is required, along with a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, plan to arrive roughly one hour early to check in and obtain your official bidding card, which is necessary for placing a bid at the auction. If the auction is online, you’ll need to log in to the auction website. Once the bidding commences, you must be cognizant of exactly how much you can offer before the property loses its bargain. If you can avoid a bidding war, your risk of paying too much will be greatly reduced.
In a matter of minutes, you will ascertain whether you won your auction or not. If you don’t win, you will get a deposit refund. However, if you win, you might have to pay for the property in full immediately after the sale. Some auctions permit you to bring cash or money order to make your quick payment. Certain entities will permit the submission of the requisite funds over the subsequent day or several days. Failure to fulfill the obligation will result in losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so finalizing payment as requested is important. 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 – whether via auctions or any alternative means – may be a challenging but rewarding undertaking. Real Property Management Vesta provides market evaluations, and guidance on potential real estate purchases in Forsyth and adjacent regions. Contact us online or call at 478-257-7055.
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.