In your quest for a fantastic bargain, you might be considering buying real estate at an auction, similar to many rental property investors. However, there are several factors you need to consider before your first auction. Buying income properties at auction is much more dangerous than its acquisition through other means. Although possessing solid information and a strategy can help reduce some of that risk, real estate auctions will never be fit for the faint-hearted – or cautious – investor. Those comfortable with some risk proceed onward to acquire the principles of successfully buying a rental home at auction.
Risks and Benefits of Buying a House at Auction
The process of buying an income property at auction includes both risks and benefits. While houses sold at auction are evaluated below market value, numerous are in poor condition or have serious complications 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.
An additional risk of buying at auction is the chance of overbidding due to excitement at the moment and facing potential delays after purchase as the property goes through various entities, state or country redemption periods, and other factors.
On the other hand, auctions are an excellent source for finding 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 upside is that you can take ownership of the property quickly. Frequently, auctions can transfer title to a home within 30 days, empowering you to begin planning for your first renter instantly. In other words, your property could start generating rental income more quickly compared to a traditional sale.
How Real Estate Auctions Work
Finding real estate auctions is the primary action of buying a property at an auction. This can be done by searching online auction websites or databases or working with a real estate agent specializing in auctions. After finding a potential property, the next move is to gather as much data as possible about the property. Guarantee that you perform a thorough comparative market analysis and examine the property’s potential as a rental home. If possible, conduct a walkthrough or plan an inspection of the property. If that is not attainable (which is often the case), you could drive by and look at the windows. It is recommended that a thorough investigation be carried out. Investigate for any occupants, liens, or other possible hindrances that could cause roadblocks to ownership.
To bid competitively at an auction, it is advisable to have sufficient cash on hand and financing lined up before you start bidding. Normally, to buy a property at auction, you will need approximately 10% of the selling price for a deposit, the ability to settle the remaining balance instantly (or within a matter of days, in some cases), and cash for administrative fees, survey costs, and insurance. Also, there are different types of auctions, so you should carefully review all the auction rules and be prepared to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, it is crucial to sign up and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, aim to attend about an hour before the auction starts to register and pick up your official bidding card, which you will use upon bidding. You’ll log in to the auction website to bid if the auction is online. Before the bidding starts, you need to ensure that you 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 be greatly minimized.
You will be able to find out if you’ve won your auction in just a few minutes. If you don’t prevail, you will receive a deposit refund. However, if you win, you may be asked to pay for the property in full immediately after the sale. Some auctions require that you bring cash or money order to finalize your transaction right away. Some will allow you additional time, extending the deadline by one or more days for you to provide the required funds. Not adhering to this requirement will lead to losing the sale, forfeiting your deposit, and even being banned from participating in future auctions. Therefore, it is essential that you complete the payment as requested. At that time, even if you won the property at auction, you will still be necessitated to undergo the escrow and closing, just as you would when buying any other property.
Growing your investment portfolio – whether through auctions or any other means – can be a difficult but worthwhile undertaking. Real Property Management Momentum offers market evaluations as well as guiding on potential real estate purchases in Ozark and the area around it. Contact us online or call at 417-324-7601.
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