If you’re a rental property investor looking to save money, you might be thinking of buying real estate at an auction. However, you should arm yourself with knowledge before your first auction. Compared to other methods, buying income properties at auction is much more dangerous. Investing in real estate auctions is not for the faint-hearted – or risk-averse, but having good information and a strategy can help reduce some of that risk. Those comfortable with some risk keep reading to learn the basics of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The primary thing to keep in mind before buying an income property at auction is that the process contains risks and benefits. While houses sold at auction are bids below market value, many are in poor condition or have serious vulnerabilities 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 involve the possible danger of overbidding in the excitement and facing potential delays after purchase as the property goes through several organizations, state or country redemption periods, and above.
In contrast, auctions are 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 perk is that you can take ownership of the property quickly. In numerous situations, auctions can transfer title to a home within 30 days, allowing you to start planning for your first renter as soon as possible. That suggests your property could begin generating rental income far more quickly than a regular sale.
How Real Estate Auctions Work
The procedure of buying a property at an auction begins by finding real estate auctions. You may achieve this by searching online auction websites or databases or working with a real estate agent specializing in auctions. After finding a potential property, the following phase is to gather information about the property. Don’t forget to do a thorough comparative market analysis and examine the property’s potential as a rental home. Ideally, walkthrough or organize an inspection of the property. If that doesn’t work (which happens quite a bit), you could drive by and peek in the windows. Conducting a thorough study would be highly recommended. Verify that there are no occupants, liens, or extra issues that may create roadblocks to ownership.
To bid competitively at an auction, it’s vital to have a substantial amount of cash on hand and financing secured before you begin bidding. Commonly, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the ability to pay the remaining balance right away (or within a matter of days, in some instances), and cash for administrative fees, survey costs, and insurance. Furthermore, there are different types of auctions, so remember to review all the auction rules attentively and be prepared to obey them.
What to Expect at an Auction
Registering and submitting a refundable deposit of 5% to 10% of the property’s expected selling price is required prior to bidding in a real estate auction. If the auction is in person, you should attend the auction an hour before the start of the sale to register and receive 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. Prior to starting the bidding process, you should have a firm grasp 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 considerably reduce.
The outcome of your auction, whether you won your auction or not, will be communicated in a minute. If you don’t win, you will get a deposit refund. However, if you win, you may need to pay for the property in full immediately after the sale. Some auctions demand you to bring cash or money order to finalize your payment then and there. A few will extend the deadline by a day or two, giving you plenty of time to send in the cash. Paying in full when required is crucial 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.
Whether you choose to do it through auctions or any other method, expanding your investment portfolio is an exciting and potentially rewarding adventure. Real Property Management Boise delivers market evaluations and advice on potential real estate purchases in Eagle and adjacent areas. Contact us online or call at 208-494-1800.
Originally Published on Apr 2, 2021
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