Risks and Benefits of Buying a House at Auction
Prior to buying an income property at auction, it is essential to understand that the procedure involves risks and benefits. Even though houses sold at auction are offered below market value, many are in poor condition or have major concerns 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 likelihood of overbidding driven by emotional impulse and facing potential delays after purchase as the property works its way through several entities, state or country redemption periods, among other factors.
On the flip side, auctions serve as a platform 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 benefit is that you can take ownership of the property quickly. Generally, auctions can transfer title to a home within 30 days, enabling immediate planning for your first renter. This indicates that your property could begin generating rental income considerably earlier than through a traditional sale.
How Real Estate Auctions Work
The process of buying a property at an auction starts by finding real estate auctions. This can be achieved by searching online auction websites or databases or working with a real estate agent specializing in auctions. After selecting a potential property, your next responsibility is to collect all pertinent information about the property. Ensure that a thorough comparative market analysis is conducted and the property’s potential as a rental home is examined. If possible, conduct or arrange an inspection of the property. If that is unfeasible (as is often the situation), you could drive by and glance through the windows. Conducting comprehensive research is crucial. Investigate for any occupants, liens, or other potential difficulties that may create roadblocks to ownership.
To bid competitively at an auction, one must have adequate cash on hand and financing secured prior to initiating bids. Typically, to buy a property at auction, you will require at least 10% of the selling price for a deposit, a readiness to remit the remaining balance promptly (or within a matter of days, in certain instances), and cash for administrative fees, survey costs, and insurance. Besides, there are different types of auctions, so you need to carefully review all the auction rules and be ready to follow them.
What to Expect at an Auction
Before bidding in a real estate auction, it is critical to register and pay a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, aim to arrive about an hour before the auction starts to check in and obtain your official bidding card, which you will utilize for bidding. You’ll log in to the auction website to bid if the auction is conducted online. Once the bidding commences, you must determine 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 drastically reduce.
You will ascertain within minutes whether you’ve won your auction or not. If you don’t win, you will expect a deposit refund. Yet, if you win, you may need to pay for the property in full immediately after the sale. Some auctions ask you to bring cash or money order to complete your payment instantly. Some will let you till the following day or several days to provide the necessary money. Neglecting compliance may result in losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so timely payment is necessary. Subsequently, even though you won the property at auction, you are still subject to the escrow and closing, just as you would when buying any other property.
Expanding your investment portfolio – through auctions or any other approaches – can be a laborious yet profitable endeavor. Real Property Management Queen City offers market evaluations, and tips on future real estate purchases in Pineville and surrounding areas. Contact us online or call at 980-392-4048.