Like many rental property investors, you might be on the lookout for a fantastic deal and thinking about buying real estate at an auction. There are a few important things to keep in mind before your first auction. Buying income properties at auction can be a bit more challenging compared to other methods. While having solid information and a strategy can help reduce some of that risk, real estate auctions might not be the best fit for those who are easily intimidated or prefer to avoid risks. Those comfortable with some risk keep reading to discover the essentials of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
Before diving into buying an income property at auction, it is good to be aware that there are both risks and benefits. Houses sold at auction often come at a below-market value; many are in poor condition or have severe 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 the potential to overbid in the heat of the moment and face potential delays after purchase as the property goes through different processes, including state or country redemption periods and so on.
On the flip side, auctions can be a great spot 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 great thing is that you can take ownership of the property quickly. In certain instances, auctions can transfer title to a home within 30 days, allowing you to start planning for your first renter as soon as possible. That means your property could start generating rental income much sooner than with a traditional sale.
How Real Estate Auctions Work
Finding real estate auctions is the first step in buying a property at an auction. You can easily find this by searching online auction websites or databases or working with a real estate agent specializing in auctions. After you discover a potential property, the next stage is to gather as much information as you can about it. Take the time to conduct a thorough comparative market analysis and analyze the property’s potential as a rental home. If you could, conduct a tour or arrange an inspection of the property. If that’s not an option (and often it is not), you might consider driving by to take a quick look through the windows. It would be great if you could do your research. Take a look for any occupants, liens, or other possible issues that might cause roadblocks to ownership.
To bid competitively at an auction, you need to have plenty of cash on hand and financing sorted out before you begin bidding. In several instances, to buy a property at auction, you will need at least 10% of the selling price for a deposit. You’ll also want to be ready to pay the remaining balance right away or within just a few days. Plus, don’t forget to have some cash for administrative fees, survey costs, and insurance. Also, there are different types of auctions, so it is a good idea to carefully review all the auction rules and get ready to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, make sure to enroll and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, it’s a great idea to arrive an hour early. This way, you can check in and pick up your official bidding card, which you’ll need to place your bids at the auction. You’ll log in to the auction website to bid if the auction is online. When the bidding starts, it’s important to have a clear idea of 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 substantially diminish.
You’ll find out in just a few minutes if you’ve won your auction or not. If you don’t win, you will obtain a deposit refund. But if you win, you might have to pay for the property in full immediately after the sale. Some auctions ask that you bring cash or money order to finalize your payment right away. Some people will allow you until the next day or even a few days to submit the needed funds. It’s really important to complete your payment as requested to avoid losing the sale, forfeiting your deposit, and even being banned from participating in future auctions. 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.
Building your investment portfolio – through auctions or any other methods – can be a demanding but exciting journey. Real Property Management Valor Team presents market evaluations, and recommendations on potential real estate purchases in Bainbridge and its neighboring areas. Contact us online or call at 440-534-6700.
Originally Published on Apr 2, 2021
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