For rental property investors, one of the most exciting opportunities to consider is buying real estate at an auction. However, before diving in, it’s essential to prepare before your first auction. Buying income properties at auction can offer the potential for significant returns, but it also comes with challenges. Even though having good information and a strategy can help reduce some of that risk, real estate auctions will never be appropriate for the fearful – or risk-averse – investor. Those comfortable with some risk continue perusing to learn the essentials of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The first thing to know before buying an income property at auction is that the procedure has risks and benefits. While houses sold at auction are priced below market value, many are in poor condition or have major faults 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 possibility of overbidding in the heat of the moment and facing potential delays after purchase as the property moves through numerous organizations, state or country redemption periods, and more.
On the other hand, auctions are a great location 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. An additional benefit is that you can take ownership of the property quickly. In most situations, auctions can transfer title to a home within 30 days, enabling you to begin planning for your first renter right away. That implies that your property could begin generating rental income much faster than a standard sale.
How Real Estate Auctions Work
The procedure of buying a property at an auction begins by finding real estate auctions. This can be accomplished via searching online auction websites or databases or working with a real estate agent specializing in auctions. Once you’ve identified a potential property, the following step is to learn as much as possible about the property. Be sure to conduct a thorough comparative market analysis and assess the property’s potential as a rental home. If possible, schedule a tour or inspection of the property. If that is unattainable (as it sometimes is), you could drive by and look through the windows. It is preferable if you conduct your own research. Check for any occupants, liens, or other potential issues that could roadblocks to ownership.
To bid competitively at an auction, you must have lots of cash on hand and financing secured before beginning to bid. In most situations, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the capacity to pay the remaining balance promptly (or within a matter of days, in some situations), and cash for administrative fees, survey costs, and insurance. Furthermore, there are different types of auctions, so be sure to carefully review all the auction rules and be ready to obey them.
What to Expect at an Auction
Before bidding in a real estate auction, you must register and pay a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, arrive approximately 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. When the bidding starts, you must understand 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 be greatly reduced.
You will know within minutes whether you’ve won your auction or not. If you don’t win, you will obtain a deposit refund. Yet, if you win, you may be required to pay for the property in full immediately after the sale. Some auctions ask you to bring cash or money order to make your payment on the spot. Others will allow you till the next day or several days to submit the necessary cash. Failure to do so could lead to losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so paying as instructed is critical. Following that, 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.
Expanding your investment portfolio – through auctions or any other means – can be a difficult but rewarding task. Real Property Management Brevard provides market evaluations and advice on potential real estate purchases in Palm Bay and surrounding areas. Contact us online or call at 321-610-8022.
Originally Published on Apr 2, 2021
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.
