Like several Beaverton rental property investors, your search for a great bargain may have you considering buying real estate at an auction. However, there are plenty of things you need to keep in mind before your first auction. Buying income properties at auction is far riskier than acquiring them in other manners. Even with great 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 get familiar with the basics of successfully buying a rental home at auction.
Risks and Benefits
Before anything else, when buying an income property at auction, you need to keep in mind that there are both pros and cons involved in the progression. Though houses sold at auction may seem to be priced below market value, many of them are in poor condition or have terrible issues requiring expensive repairs. You may not be able to inspect the property before you buy, so this is one risk that can be hard to intervene. Further risks of buying at auction include the potential to overbid in the heat of the moment and experience potential delays after purchase as the property deals with different entities, state or country redemption periods, and more.
On the positive side, auctions are a venue where real bargains on rental real estate can be found. When you purchase a property at a major discount, not just the cash flows but the total return on your investment can be improved dramatically. Another advantage is the capability to take possession of the property within a short time. In many situations, auctions can transfer the title on a property within 30 days, allowing you to begin preparations for your first tenant right away. That means your property could start generating rental income much faster than a traditional sale.
How It Works
The method of buying a property at an auction begins by finding real estate auctions. This can be possible by searching online auction websites or databases or interacting with a real estate agent specializing in auctions. When you discover a potential property, your further action is to find out as much as you can about the property. Be sure to conduct a careful comparative market analysis and evaluate the property’s potential as a rental home. Advisably, 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. In your research, you must do your research. Monitor if there are any occupants, liens, or other possible issues that may create roadblocks to ownership.
To bid competitively at an auction, it’s critical to have a lot of cash on hand as well as financing lined up before you start to bid. In general, 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, sometimes), and cash for administrative fees, survey costs, and insurance. Apart from that, there are different types of auctions, so you must carefully research and be prepared to obey all of the auction rules.
What to Expect
Before you can bid in a real estate auction, you will need to register and submit a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, plan to arrive about an hour before the auction starts to check-in and get your official bidding card, which you will utilize when you bid. If the auction is online, you’ll log in to the auction website to make your bid. Once the bidding begins, you will need to know exactly how much you can offer before the property is no longer a bargain. If you can avoid a bidding war, the possibility of paying too much will greatly reduce.
In a matter of minutes, you will know whether you’ve won your auction or not. If you don’t win, you will obtain a refund of your deposit. But if you win, you will be requested to pay for the property in full immediately after the sale. Some auctions require you to bring cash or money order with you to complete your payment on the spot. Others will give you until the next day, or perhaps several days, to submit the required funds. Failure to do so will lead to losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so it’s vital to complete payment as demanded. At that point, 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.
Growing your investment portfolio – through auctions or any other means – can be a challenging but satisfying undertaking. Real Property Management Assurance 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 971-270-2600.
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