Like many rental property investors, you may be contemplating buying real estate at an auction in order to find a fantastic deal. However, there are numerous factors that must be considered before your first auction. Buying income properties at auction is significantly more hazardous than purchasing them through alternative methods. Real estate auctions are not appropriate for investors who are reluctant to take risks or timid, despite the fact that having good information and a strategy can help reduce some of that risk. Those comfortable with some risk read further to acquire the fundamentals of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
Before buying an income property at auction it is crucial to be aware of the risks and benefits. Although houses sold at auction are 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.
The potential to overbid in the excitement of the moment and face potential delays after purchase as the property works its way through multiple organizations, state or country redemption periods, and more are additional risks of buying at auction.
On the flip side, auctions are opportunity 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. Another plus is that you can take ownership of the property quickly. Auctions typically transfer title to a home within 30 days, enabling you to commence planning for your first renter quickly. This indicates that your property could commence generating rental income at a significantly quicker pace than a conventional sale.
How Real Estate Auctions Work
The initial step in the process of buying a property at an auction is to find real estate auctions. This can be performed by searching online auction websites or databases or working with a real estate agent specializing in auctions. Upon discovering a potential property, the subsequent action is to gather as much information as possible about the property. It is important to conduct a thorough comparative market analysis and assess the property’s potential as a rental home. If possible, walkthrough or arrange an inspection of the property. If that is not possible (and often it is not), you could drive by and peek in the windows. It would be best if you did your research. Check for any occupants, liens, or other potential problems that may create roadblocks to ownership.
It is imperative to have sufficient cash on hand and financing secured prior to commencing the auction in order to bid competitively at an auction. In numerous instances, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the ability to pay the balance that remains promptly (or within a matter of days, in some cases), and cash for administrative fees, survey costs, and insurance. Also, it is crucial to thoroughly review all the auction rules and be prepared to adhere to them, as there are different types of auctions.
What to Expect at an Auction
Before bidding in a real estate auction, it is necessary to register and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, it is recommended that you attend approximately one hour prior to the commencement of the auction to register and get your official bidding card, which you will use to place your bid. You’ll log in to the auction website to bid if the auction is online. You must be mindful of exactly how much you can offer before the property is eliminated as a bargain once the bidding commences. If you can avoid a bidding war, your risk of paying too much will considerably be diminished.
You will be informed within minutes of the outcome whether you’ve won your auction or not. If you are unsuccessful, you will receive a deposit refund. Nevertheless, if you win, you may be required to pay for the property in full immediately after the sale. In certain auctions, it is necessary to bring cash or money order to make the payment in person. Some will grant you an extension of one or more days to submit the necessary funds. Completion of the payment as required is imperative, as failure to do so could lead to losing the sale, forfeiting your deposit, and even being banned from participating in future auctions. Afterward, 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 – through auctions or any other approach – can be an exhausting but rewarding endeavor. Real Property Management Tri-Cities gives market evaluations and guidance on prospective real estate purchases in Kennewick and nearby. Contact us online or call at 509-572-5440.
Originally Published on Apr 2, 2021
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