Like many Caldwell rental property investors, your search for a great bargain may have you considering buying real estate at an auction. But there are numerous things you need to understand before your first auction. Buying income properties at auction is far riskier than buying them in other ways. While having good information and a strategy can help reduce some of that risk, real estate auctions will never be right for the faint-hearted – or risk-averse – investor. Those comfortable with some risk keep reading to learn the necessities of successfully buying a rental home at auction.
Risks and Benefits
Perhaps the first thing to remember before buying an income property at auction is that there are negative and positive sides included in the process. Although houses sold at auction may tend to be priced below market value, many of them are in poor condition or have significant issues involving additional repairs. You may not be able to inspect the property before you buy, so this is one risk that may be hard to determine. Other risks of buying at auction include the potential to overbid in the heat of the moment and possible delays after purchase as the property works its way through several entities, state or country redemption periods, and so on.
On the other hand, auctions are a perfect place to find good bargains on rental real estate. When you purchase a property at a big discount, you will improve not just your cash flows but also the overall return on your investment as well. Another feature is the capability to take possession of the property within a short time. Mostly, auctions can transfer the title on a property within 30 days, allowing you to begin preparations for your first tenant right away. That indicates your property could begin generating rental income much quicker than a traditional sale.
How It Works
The procedure of buying a property at an auction begins by finding real estate auctions. You can discover this by searching online auction websites or databases or collaborating with a real estate agent specializing in auctions. When you locate a potential property, the following step is to find out as much as you can about the property. Don’t forget to perform a thorough comparative market analysis and evaluate the property’s potential as a rental home. If possible, walk through 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. In your research, you must conduct an inspection. Look for any occupants, liens, or other possible issues that may create barriers to ownership.
To bid competitively at an auction, you need to have plenty of cash on hand as well as financing lined up before you start to bid. In many 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 remaining balance immediately (or within a matter of days, usually), and cash for administrative fees, survey costs, and insurance. What is more, there are different types of auctions, and you should read and be ready to follow all of the auction rules carefully.
What to Expect
Before you can bid in a real estate auction, you have to register and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, be ready to arrive about an hour before the auction starts to check-in and receive your official bidding card, which you will use when you bid. If the auction is online, you’ll log in to the auction website to make your bid. When the bidding opens, you will need to know exactly how much you can offer before the property is no longer a bargain. If you can bypass a bidding war, the possibility of paying too much will be greatly reduced.
You will know in just a few minutes whether you’ve won your auction or not. If you don’t win, you will receive a refund of your deposit. However, if you succeed, you will be required to pay for the property in full immediately after the sale. Other auctions ask you to bring cash or money order with you to complete your payment directly. Others will allow you until the day after, or possibly a few days, to complete the required funds. Failure to do so will result in losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so it’s ideal to complete payment as requested. After that, although you won the property at auction, you will still go through escrow and closing, just as you would when buying any other property.
Growing your investment portfolio – through auctions or any other means – can be a hard but rewarding task. Real Property Management Nampa offers free market rent evaluations, and we’re willing to give you advice on any potential properties you’re considering purchasing. You can contact us online or call at 208-960-0660.
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