Going once. Going twice. SOLD! How To Buy Investment Real Estate at Auction
There’s no doubt real estate can be a lucrative investment strategy. As discussed in previous posts, there are a few options available to investors interested in adding real estate to their portfolio. Buy and hold investing, fixer-upper flipping, and even real estate investment trusts (REITS) are a few common strategies. In this post, we’re going to cover an acquisition strategy not yet discussed: auctions.
Buying at auction can be a great forum for investors seeking to purchase property at a discount. Both buy and hold and fix and flip investors can benefit from auction real estate. Sometimes the properties are distressed, sometimes they are ready to be leased upon purchase—it always depends. One thing is certain regardless of strategy—due diligence is essential. Let’s jump into some of the steps to take when considering buying at auction.
First, you’ll want to locate an auction. Foreclosure auctions are generally held at the county courthouse or sometimes the local police station. Investors also have the option to access online auction platforms that don’t require you to even leave your computer. Our affiliate company, Hubzu.com is a great tool for investors seeking online auction inventory, including properties without buyer’s premiums or technology fees. After locating an auction with properties of interest, you will want to conduct as much due diligence as possible before bidding day. While you probably won’t have the opportunity to go inside the property, you can still do your research. What is the estimated market value? How’s the neighborhood? How much is owed on the mortgage? Are there any liens on the property? Title agencies are able to assist in determining if the property has any title defects that would be a deterrent to purchasing.
If possible, drive by the property. You should be respectful of the resident if there is one, but gauging the property’s physical condition can be a great way to understand what you’d be getting into. As Dennis pointed out in the auctions episode of The Investability® Podcast (episode #44), the outside is generally a good indicator of the inside. If the lawn is nicely manicured and the home looks well taken care of, you can likely bank on the inside being well-kempt too. The same goes for a run down exterior.
Before the day of the auction, you will want to speak with a lender to make financing arrangements. Payment is generally required at the close of the auction so unless you are planning to pay with cash, you’ll need to line up financing beforehand. Before going to the auction, understand what forms of payment are accepted and ensure you bring the right funds. You’ll also want to be clear about any fees associated with purchasing at auction. Buyer’s premiums are common.
The last piece of diligence is imperative. Analyze the numbers. Know your max bid and stick to it! Factor in the uncertainty of necessary renovations. Being unable to conduct a pre-purchase inspection means that you don’t know for sure what work the property may need. It is strongly recommended to err on the conservative side when calculating your anticipated returns.
Call the auction house the day-of to make sure the properties you’re interested in are still available, then head out and have fun! If you’re interested in online auctions, check out Hubzu.com for inventory.