Comparable to many rental property investors, pursuing a great deal may lead you to contemplate buying real estate at an auction. Nevertheless, you need to be quite knowledgeable about several things before your first auction. Buying income properties at auction includes much more risk than acquiring them elsewhere. Although having reliable information and a strategy can help reduce some of that risk, real estate auctions will never be good for the scared – or risk-averse – investor. Those comfortable with some risk proceed forward to discover the essentials of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The first thing you should be informed before buying an income property at auction is that the procedure contains risks and benefits. Although houses sold at auction are obtainable below market value, several are in poor condition or have major defects 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 potential to overbid in a hurry of the situation and face potential delays after purchase as the property passes through several bodies, state or country redemption periods, etc.
On the contrary, auctions are one site 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 upside is that you can take ownership of the property quickly. On many occasions, auctions can transfer the title to a home within 30 days, allowing you to start planning for your first renter promptly. That suggest that your property could begin generating rental income more rapidly than a conventional sale.
How Real Estate Auctions Work
The first step in buying a property at an auction starts with finding real estate auctions. This can be done by searching online auction websites or databases or working with a real estate agent specializing in auctions. The minute you find a potential property, your next move is to learn as much as possible about the property. Be sure to accomplish a thorough comparative market analysis and weigh the property’s potential as a rental home. If at all possible, walkthrough or plan an inspection of the property. Should that prove impossible – often it is – you could drive by and look in the windows. It would be advantageous if you undertook some studies. Seek any occupants, liens, or other likely problems that may generate roadblocks to ownership.
To bid competitively at an auction, having sufficient cash on hand and financing secured before you proceed to bid is critical. Mostly, to buy a property at auction, you will need at least 10% of the selling price for a deposit, the capability to pay the remainder in full on time (or within a matter of days, in some instances), and cash for administrative fees, survey costs, and insurance. In addition, there are different types of auctions, so make sure you meticulously review all the auction rules and be ready to use them.
What to Expect at an Auction
Prior to bidding in a real estate auction, it is advisable to register and pay a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, plan to attend around an hour before the auction opens to sign in and acquire 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. As soon as the bidding starts, it is important to know exactly 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.
Minutes will indicate whether you have won your auction or not. Should you not win, you will receive a deposit refund. If you do, however, you could be needed to pay for the property in full immediately after the sale. Some auctions demand you to bring cash or money order to make your payment a little later on. Some will permit you to submit the required payment until the following day or several days later. Disregarding this may cause you to lose the sale, forfeit your deposit, and even be banned from participating in future auctions, so paying as directed is absolutely imperative. 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.
Expanding your investment portfolio by auctions or alternative method can be a challenging yet gratifying endeavor. Real Property Management Chicago Group offers market evaluations, and assistance on possible real estate purchases in Evanston and its vicinity. Contact us online or call at 312-265-0660.
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