Similar to numerous rental property investors, your pursuit of exceptional deals may lead you to think about buying real estate at an auction. But there are numerous factors you must understand before your first auction. Buying income properties at auction is much more perilous than obtaining them through alternative methods. While possessing good information and a strategy can help reduce some of that risk, real estate auctions will always be inappropriate for timid or risk-averse investors. Those comfortable with some risk continue reading to understand the key elements 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, it is critical to understand that the process entails both risks and benefits. Although houses sold at auction are listed below market value, many are in poor condition or possess significant 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.
Additional risks of buying at auction encompass the possibility of overbidding due to emotional impulse and facing potential delays after purchase as the property navigates through many companies, state or national redemption periods, and other factors.
In contrast, 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. A further benefit is that you can take ownership of the property quickly. Oftentimes, auctions can transfer title to a home within 30 days, allowing prompt planning for your first renter. This suggests that your property may commence generating rental income more rapidly than through a conventional sale.
How Real Estate Auctions Work
The procedure for buying a property at an auction commences with 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. Upon identifying a potential property, the subsequent stage is to gather comprehensive information regarding the property. Be sure to do a thorough comparative market analysis and analyze the property’s potential as a rental home. If feasible, walkthrough or request an inspection of the property. If that is unfeasible (as is frequently the case), you may consider driving by to glance through the windows. Conducting thorough research is advisable. Investigate for any occupants, liens, or other potential issues that may create roadblocks to ownership.
To bid competitively at an auction, you need to possess ample cash on hand and financing lined up prior to commencing bids. Typically, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the capacity to remit the rest of the payment promptly (or within a few days, in certain instances), and cash for administrative fees, survey costs, and insurance. What is more, there are different types of auctions, so be sure to meticulously review all the auction rules and be ready to conform to them.
What to Expect at an Auction
Before bidding in a real estate auction, you must register and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, plan to arrive about an hour before the auction starts to check in and get your official bidding card, which you will use when you bid. You’ll log in to the auction website to bid if the auction is online. Once the bidding begins, you must know 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 diminish.
You will determine within minutes if you have won your auction or not. In the event of a loss, a deposit refund will be issued. Yet, if you prevail, you may be required to pay for the property in full immediately after the sale. Certain auctions necessitate you to bring cash or money order for immediate payment completion. Some will let you till the following day or several days to provide the necessary money. Neglecting to comply will result in losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so timely payment is imperative. Subsequently, even though you won the property at auction, you will still undergo the escrow and closing, akin to buying any other property.
Expanding your investment portfolio – whether via auctions or alternative methods – can be a demanding yet rewarding pursuit. Real Property Management 360 delivers market evaluations and counsel on prospective real estate purchases in Irving and its vicinity. Contact us online or call at 817-502-3588.
Originally Published on Apr 2, 2021
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