Wondering “How can I buy cheap homes for sale near me?” If you are looking for a great real estate investment deal, consider buying a property for sale at a real estate auction. Here are two main ways an investment property can end up being sold at an auction:
- Real estate foreclosure auctions – When a property owner fails to keep up with their mortgage payment for several months, the lender will file a notice of default. If the homeowner doesn’t pay the amount owed or renegotiate the mortgage, the lender will then put the bank foreclosures up for auction.
- Property tax default auctions – A home can also end up being auctioned when the owner fails to pay the required property taxes. In such a case, it is the tax authority that repossesses the home. A tax lien auction is carried out by the county clerk, the sheriff, or the comptroller’s office.
There are several advantages to purchasing foreclosure houses. Since sellers are motivated to get rid of the properties and recover their money, you are likely to find investment properties that will generate excellent return at a great discount. Moreover, you will face much less competition than you would have buying via the traditional route. Buying at auction also helps you avoid long negotiation periods and reduces the transaction process.
How does a real estate auction work?
There is no one-size-fits-all way of conducting home auctions. Here are the three common kinds of auctions you are likely to encounter:
- Absolute action – This type is very popular with sellers that want a simple and fast real estate transaction. With absolute auctions, the property is awarded to the highest bidder. Since the sale is guaranteed, such auctions usually attract many participants. Bidding always starts at $0.
- Minimum bid auction – Just as the name suggests, there is a minimum amount where bidding can start. To participate, you must be able to pay above the minimum bid amount.
- Reserve auction – With a reserve auction, there is no guarantee that any bid will win. The reserve price is the lowest amount the property owner is willing to accept for the home. And the seller is under no obligation to release their property if they feel the winning bid is too low.
Related: How Do Real Estate Auctions Work Exactly?
How to buy real estate at auction
Since foreclosed homes can constitute outstanding real estate investing opportunities, it is important for investors to know how the process works. Here are the things you need to consider:
Understand the foreclosure laws in your state, city, and county
Each jurisdiction has its own laws governing foreclosures. For example, some states have a foreclosure redemption period. This is a designated duration when the property owner can redeem their home, which could be as long as one year in some places. This means that you can’t do much until this period expires. For instance, you might not be allowed to evict tenants or begin generating rental income during this period. To avoid such situations, be sure to get familiar with the laws in your area.
Weigh the pros and cons
Weighing in the pros and cons of buying an investment property at a real estate auction
As mentioned earlier, real estate auctions present a great opportunity to buy income property below market value. You will also avoid completion and save lots of time in the transaction process. However, you should also be aware of the risks associated with auctions. If the home has code violations and liens, you might end up incurring extra expenses. In case you buy a home that is still occupied by the former owner or tenants, evicting the occupants could be very difficult. Finally, there is the risk that you could end up paying more for the home than what it is worth.
Related: Real Estate Auctions: Everything You Need to Know
Sort out your finances
Before going to an auction, make sure you have enough money saved up to pay the bidding fees, auction fees, and earnest money deposit. In addition, you need to get pre-qualified for a mortgage ahead of time. If you place the winning bid, proof of funds will be required within 24 hours.
Related: How to Buy a House at Auction Without Cash: An Investor’s Guide
Set a budget
Never go to an auction before setting a budget. In the heat of bidding, it is very easy to commit more than you can afford. Knowing your upper limit will keep you focused during the real estate auction.
Find investment properties up for auction
You can find HUD houses for sale and more by visiting the websites or offices of your local government. Local real estate agents can also be a valuable source of information on real estate auctions. Another great place to find property for sale is on real estate auction sites and bidding sites like Auction.com, Hubzu, Williams and Williams, Bid4Assets.com, Concierge Auctions, and Foreclosure.com.
You might also want to check out the Mashvisor Property Marketplace for a comprehensive listing of foreclosed homes. Filters like budget, location, number of bedrooms, cap rate, and cash on cash return will help you find the exact off market properties what you are looking for. In addition, you can analyze the profitability potential of rental properties using the real estate return on investment calculator.
Register for the auction
To participate in live or online real estate auctions, you will have to register first. Potential buyers are also expected to place a deposit of about 5% before bidding on a home. The deposit can be paid to the real estate auction company via credit card, certified check, or cash.
Participate in the auction
Buying an investment property at a real estate auction
The bidding process for live or virtual real estate auctions is very similar. On the day of the auction, show up early with all the documentation required. When the auction begins, stay calm and bid responsibly. If you win the bid, you will be required to pay a deposit of 5% to 10% within 24 hours. Afterwards, you will have 30-45 days to make full payment and transfer title.
Conclusion
Buying property at a live or online auction can be very risky, especially if you don’t have experience. You could end up with a myriad of problems which you didn’t anticipate. This is why it is important to do your due diligence before getting involved in real estate auctions. If home inspection is not allowed, at least walk around or drive by the income property to assess its condition. Conduct a title search and check for liens with a title or escrow company. Last but not least, conduct thorough investment property analysis to ensure that the property will generate good return.
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