To all the investors in the world that are looking for great deals on property, there is one place that you must start looking and that is the real estate auctions. They are perfect for investors that are looking to generate instant equity in their purchases, but there are some words of warning and things that you should know before venturing into the world of real estate auctions.
Be careful if you are new to real estate investing and are still learning how to invest in real estate because this just might be too high of a level for new investors. It takes ice in your veins and a deep understanding of the market, repair values at a glance, and large amounts of cash.
Why Real Estate Auctions should be approached with caution?
1) Can’t view property before purchase.
When purchasing property from real estate auctions, you are not allowed to schedule an appointment to view the interior of the property like in a normal purchase. You might ask how can you make a reasonable purchase opportunity and respectable bid if you cannot view the current condition of the property and this would be a great question. But you can’t. You just have to assume the worst for the most part, which is why these real estate auctions are not for those that are not an expert in the market, property values, and repair cost assumptions.
You are allowed to visit the property on the outside, view the windows and look in to see what you can. And yes, before you ask, there are some investors that will pick the locks, hop in a window to get an inside view of the property. This is illegal, but it does happen.
2) Research, Research, Research
Even though you cannot get inside the property, doesn’t mean that you cannot research the property to find out as much information as you can about the property. After you have visited each property that you may potentially bid on at the real estate auctions, you might want to start your online research to see what else you can find.
This mostly begins with the pin number of the property. Everything is about the pin number when you are dealing with real estate auctions because that is how the city, banks, and municipalities deal with these properties, by pin numbers. Therefore your research will be centered around the pin numbers.
Sometimes you are made aware of additional plots of land that are associated with the property that may not be easily identified by the property addresses because there are actually two addresses associated with the pin numbers.
In addition, you want to check the deeds to see what the property was sold for and how much the last outstanding mortgage on the property was for. There are some other things that you will discover while doing this like if there are any second leans on the property and which lean is being sold at auction.
In fact, which lean is being sold at auction is a very important part of this process because if you mess around and purchase the second lien at a real estate auctions then you are responsible for the first lien. However, if you are purchasing a first lien at a real estate auctions, then you don’t have to pay the second or third leans on the property. The lesson here is only purchase first liens at real estate auctions, but you would only know that with property research of the property’s pin numbers.
3) Cash Only
This is the big thing to remember when it comes to purchasing property at real estate auctions. You can only use cash or cashiers checks. They are not trying to hear anything about a loan, period. If you don’t have the cash, then you cannot purchase at a real estate auctions. Yes, people make great deals and buy properties cheap, but it is a deep pockets game and if you don’t have the deep pockets, then you cannot plan.
How the real estate auctions work is like this. You bid on a property verses everyone else in attendance. Once you win a bid, you have to put down 10% deposit on the property that same day. In fact, you have to put it down at that very moment. Then, in 24 hours, the balance of the bid is due.
Example, if you are bidding on a $200,000 property and win the bid for that much. You must put down $20,000 the same day, then return the next day with the remaining $180,000. Now, this property may not need any repairs once you get to see the inside or it might need another $200,000 worth of repairs on top of that. If you spent all your money to get the property in hopes that it is in good condition, then you are out of luck. It is not recommended that you purchase at real estate auctions on hope and looking for luck and favor.
In closing, the real estate auctions are for the professional investors that have made some money in this business or another, but that is looking for a great deal on their funds, have the knowledge to do the research, and know their markets inside and out. Good luck to you if you decide to go down the path of purchasing property at the real estate auctions.
