Foreclosure auctions are not for the faint of heart. Even experienced investors can feel overwhelmed by the frenetic pace, the confusing rules, and the unknowns that come with purchasing a property “as is.” But if you’re willing to be patient and accept some risk, you may score yourself an incredible deal on a home.
Here are some helpful tips to help you navigate the auction process like a professional.
1- Educate Yourself
If you’re hoping to enter the world of foreclosure auctions, experts suggest attending a few as an observer to familiarize yourself with the process. Like good poker players, some bidders may wear hats and sunglasses to avoid tipping their hands during the auction. The more you learn at the beginning, the less intimidated and surprised you’ll be when it’s time to bid on the home you want. Foreclosure and tax lien auctions are usually listed in your local paper, although certain websites can point you to auctions happening in your area.
2- Set Your Limits
Once you find a property that piques your interest, figure out what you’re willing to spend. Check sales of comparable properties in the same area and commit to bidding only what you are comfortable with. (That’s especially important given the increased risk that foreclosure auction buyers assume.) HouseLogic, a site created by the National Association of Realtors, suggests bidding no more than 70 percent of a house’s market value. The reason? More often than not, you won’t be able to see the interior before you buy, and homes in foreclosure may be more distressed than other properties on the market. These homes could need more than a new coat of paint— you may be on the hook for significant repairs like new plumbing or a new roof.
A property’s location will determine its After Repair Value (ARV), so be sure to visit the neighborhood if you can. With a little TLC, a run-down house in a sought-after location could become a desirable place to live. But if the area has a high crime rate, poorly performing schools, or is surrounded by other unkempt properties, unloading it for a profit may be difficult, even after renovations.
3- Conduct a Title Search
A neighborhood drive may help you get an initial feel for a home, but it won’t give you the full picture of what you should be prepared to pay. Perform a pre-auction title search on a property to learn what other liens, if any, exist on a home in foreclosure. For example, it’s possible the home’s previous owners owe back taxes on the property, in which case the new owner— that’s you— would be on the hook for those repayments. If you decide to move forward with the property, you’ll want to factor any existing liens that will not be eliminated by the foreclosure into your budget.
4- Secure Funding Up Front
Come to the auction prepared to move quickly. Research the auction’s specific rules before you attend, as they vary from state to state and even county to county.
Most foreclosure auctions will require payment in full immediately after the auction, or within a very short timeframe afterwards.
If you aren’t able to pay cash for a property, you can secure financing for a foreclosure using what’s called “hard” money. These loans come from private investors, and they typically don’t require an appraisal or inspection─ neither of which are options for a house being sold at a foreclosure auction. The downside? These loans come with steep interest rates and strict repayment terms.
5- Place Your Bid
The auction environment can be intimidating. The auctioneer moves briskly, and the crowd may be made up of professional real estate investors who have been in the business for years. But everyone plays by the same rules. Don’t clam up or get caught up in the excitement and bid more than what’s in your budget.
Bidding sometimes starts at what the lender is owed, which may be more than what the house is worth. Don’t get sucked in. If nobody bids on the property, the bank takes ownership and may hire a real estate agent to sell it through traditional means, which gives you another chance to make an offer.
6- Be Patient
If you place the winning bid, don’t expect to start flipping your new property immediately. Depending on the county of the auction, it may take 30 days or more to receive a copy of your deed. During this time, you’ll provide all necessary payments if the terms of the auction did not require them on the day of sale. Once you’ve paid off the balance owed on the home and the deed has been recorded, you’ll receive the title to the property.
7- Manage Complications
Unfortunately, the foreclosure auction process usually occurs when an owner cannot or will not meet their mortgage responsibilities. If the previous owner or other occupant is residing in the home after you take ownership, follow the appropriate legal steps to either evict the current occupant or negotiate a lease with that occupant. Consult with a lawyer to help you navigate this often uncomfortable process.
Buying a foreclosure home at auction comes with some risk, but with a little preparation— and some patience and flexibility— you’ll be well on your way to real estate success.
Article source: www.nuwireinvestor.com