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How to Purchase A Casselberry Rental Property at Auction

A Man with a Gavel and Model HouseAs well as most Casselberry rental property investors, your hunt for a great bargain may lead you to consider buying real estate at an auction. But there are a number of things you need to be informed of before your first auction. Buying income properties at auction is far riskier than purchasing them in other ways. Even though having detailed 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 acquire the fundamentals of successfully buying a rental home at auction.

Risks and Benefits

The first thing to keep in mind when buying an income property at auction is that there are both advantages and disadvantages involved in the procedure. Even though houses sold at auction may seem to be priced below market value, many of them are in poor condition or have severe problems that will need significant repairs. You may not be able to inspect the property before you buy, so this is one risk that may be hard to prevent. Other risks of buying at auction include the potential to overbid in the heat of the moment as well as possible delays after purchase as the property passes through different entities, state or country redemption periods, and so on.

On the flip side, auctions are a good idea to seek real bargains on rental real estate. When you purchase a property at a substantial discount, you will boost not only your cash flows but also your total return on your investment. Another feature is its ability to take possession of the property within a short time. Usually, auctions can transfer the title on a property within 30 days, allowing you to begin preparations for your first tenant right away. As a result, your property will begin generating rental income much earlier than a traditional sale.

How It Works

The process of buying a property at an auction begins by finding real estate auctions. This can be done by searching online auction websites or databases or working with a real estate agent specializing in auctions. Once you discover a potential property, your next step is to find out as much as you can about the property. Be sure to do a comprehensive comparative market analysis and evaluate the property’s potential as a rental home. Preferably, walkthrough or arrange an inspection of the property. If that is not possible (which it usually isn’t), you could drive by and peek in the windows. In your research, you should conduct an inspection. Examine if there are any occupants, liens, or other possible problems that might prevent you from taking possession.

To bid competitively at an auction, it’s recommended to have enough cash on hand as well as financing lined up before you start to bid. Generally, 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, in some cases), and cash for administrative fees, survey costs, and insurance. Additionally, since there are different types of auctions, make sure to fully review all of the auction rules and be ready to follow them.

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 show up about an hour before the auction starts to register and receive your official bidding card, which you will use to place your bid. If the auction is online, you’ll log in to the auction website to make your bid. Once the bidding starts, you will need to determine 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 significantly diminish.

You will know whether you’ve won your auction or not in minutes. If you don’t win, you will get a refund of your deposit. However, if you succeed, you will be asked to pay for the property in full immediately after the sale. A few auctions will ask you to bring cash or money order with you to settle your payment instantly. Others will allow you until the next day, or even several days, to settle the required funds. Failure to do so will cause you to lose the sale, forfeiting your deposit, and even being banned from participating in future auctions, so it’s advisable to complete payment as soon as possible. At that time, 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 rewarding undertaking. Real Property Management Vanguard 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 407-681-7802.

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