A creative way of acquiring properties at discounted prices is to purchase them at auction. After a homeowner goes into foreclosure, the bank will take back the property that was used as collateral for the mortgage. (It is important to remember that the timeline of the foreclosure process is different in every state, and every investor should consult competent, local, legal advice when investing in real estate.) Since the bank does not want to keep this property for a lack of ability to market, upkeep, rehab or carry the costs of the property, they will auction the property off at a specified date, time and location. This information is public record, and can be found at your County Recorder’s Office or Website.
Auction procedures also vary state-to-state, and county-to-county. However, these general tips should help you in gaining the ability to confidently purchase properties at auction.
Here is some expert advice on auctions:
- It is crucial to remember that there are people that purchase properties at auction full-time, and are very experienced. Do not take this as a sign that you should not attend auctions in order to acquire properties. However, be mindful of the fact that these people know the process and the properties very well, and can often prey on new investors to hinder them from coming back to the auction.
- Because of these auction “regulars,” you should attend the auction from which you would like to purchase properties for 30 consecutive days or sessions before ever placing a bid. This will allow you to review the process and details of your specific auction, and will give the “regulars” a chance to get used to your presence.
- Sometimes, other potential investors will offer you money to stop bidding against them if they really want to purchase a specific house. It is imperative that you do not accept this money. It is considered collusion, and is illegal. You can go to jail for accepting such a bribe at the auction.
- It is also very important to know that you should not use “hard money” to bid on properties at auction. (Hard money is non-traditional financing in which one borrows money from another individual. This individual can charge points up front, and a percentage of the profits of the real estate deal.) The reason that you should not use hard money for auctions is because there is no way of knowing if you will get the property or not. If you do not get the property, but borrowed money for that day, you would not be refunded the points you paid up front, or the interest for using hard money that day. In essence, you could have to pay money for borrowing money without obtaining one property or making a dime. Hard money is a great tool for any beginning investor with minimal cash to invest. However, it is expensive money, and should not be used at auction.
- Even though we have stated some precautions for you, the fifth rule is to not be afraid. Auctions can be a great acquisition strategy for some, and you can find great deals at them! Be confident and educated about the processes, and always do your due diligence before taking part in any investment.
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