302: Finding Great Investment Properties at Real Estate Auctions

SHOW NOTES FOR EPISODE 302: FINDING GREAT INVESTMENT PROPERTIES AT REAL ESTATE AUCTIONS

So, you’ve finally decided to take the plunge into real estate investing.  Your next step is to find an investment property that’s increasing in value and will give you great returns.  However, in today’s seller’s market, good below-market investment properties are hard to find.  In today’s podcast, Bill explores the world of real estate auctions and some of the great opportunities available for investors with the know how to tap into this valuable resource.

Good properties typically sell within 30 days of being listed. That means you should be open to different ways to locate that perfect investment property. Real estate auctions are one option that levels the playing field and allows you to compete against anyone wishing to buy the home.

However, you should be aware of a few things before purchasing at a real estate auction — like these six tips.

1. Get to Know Your Local Bank

Homes sold at auction are often foreclosures. The lender wants to make a quick sale and get a portion or most of their investment back. Depending upon the equity in the home, this means you can sometimes find good deals through these auctions.

Take the time to reach out to your local banks and let them know you’re interested in investment properties. They may even let you know when they have foreclosures available and are getting ready to hold an auction.

2. Study Local Real Estate

If you’re not familiar with the local real estate market, it will be impossible to know whether that auction price is a good deal or a bad one. One of the elements both buyers and sellers like about auctions is that you don’t have to negotiate terms and go back and forth. However, this is also a drawback if you aren’t familiar with what that home is worth in the exact condition it’s in.

Take the time to look online at listing sites and even go through open houses to see the listing price and condition of homes in your area.

3. Talk to Contractors

Auctioned homes are almost always sold as-is. That means you need to become familiar with potential problem areas and how much it costs to fix and upgrade the house. For example, if the roof looks as though it’s ready to fall in, how much will it cost to replace the roof, including the decking?

Take the time to talk to local contractors and get general estimates. While you may be able to complete smaller jobs on your own, you’ll need a list of professionals to come alongside you and fix serious issues. Knowing the potential cost also allows you to determine if you can afford that “great deal” at the auction or not.

4. Learn How Auctions Work

Buying a property at auction is entirely different than going through a realtor. There are two models for auctions — they’re either instant, in real-time, or they happen over a few weeks with a minimum bid set or online bids taken. When the bidding gets down to a single bidder willing to pay the top price, the auction closes.

You’ll either need to pay immediately, which means you’ll need financing ahead of time, or you’ll place a five to 10 percent deposit and pay the remainder within 30 to 45 days. Talk to the auctioneer ahead of time to learn the terms of a specific auction, so you’re prepared before you bid.

5. Figure Out After Repair Value

If you need to secure funding from a lender, understand that they typically only lend 65 to 80 percent of a home’s after repair value (ARV). You’ll likely have to make up the rest in the form of cash down. This is where knowing the market and what a home is worth after rehabilitation comes in handy — you’ll be better able to determine if that great deal is one you’re ready to bid on or not.

6. Drive by the Property

Much of the time, the home is foreclosed, and you’ll be unable to get inside to determine the condition of the house. If the person hasn’t paid their mortgage, assume they haven’t had the funds to keep up with maintenance and plan for multiple repairs and cosmetic upgrades.

However, you can take the time to drive by the property and get a general idea of the condition from the outside. Take the time to look at the roof carefully. Does it look like it needs to be replaced? You can also determine a lot from the age of a home. A newer home may not need a new furnace, while an older home likely will. These types of big-ticket item costs add up quickly.

Finding Investment Properties

Auctions are a fantastic way to secure investment property quickly and for a lower price than you might otherwise pay. Although there are some specific challenges with buying from an auction, there are also many benefits. Take the time to get to know your area and the auctioneers, and you’ll pick up enough information to make a wise investment.

Holly Welles is the editor behind The Estate Update and passionate about providing actionable advice for those looking to learn more about the real estate market — especially as millennials begin to tackle the industry.

Real estate auctions have continued in popular, especially as people reply more on technology to buy and sell homes, and digital auctions increase in their popularity.  Auction web sites are also a great way for real estate investors and homebuyers to efficiently locate and purchase real estate at outstanding prices.

In this article, we briefly review four of the top online real estate auction websites, giving you the pros and the cons of each, to help real estate investors make more money. And at the end, we give you a bonus list of real estate auction websites you should investigate.

Overview of Online Real Estate Auction Websites

For sellers wanting to move real estate quickly, listing it on an online auction website is an excellent tool. The best online real estate auction sites have built-in marketing platforms to market properties for sale, which helps generate interest, find potential buyers, and quickly sell properties at a good price.

For buyers, real estate auction sites are a great way to quickly search for properties, do initial research, bid on properties at auction, and purchase properties at a very good price.

When using an online auction website, be sure to understand the terms of participation, the buyer’s premium, terms of sale, disclosures, fees, information regarding inspecting the property prior to the auction, etc.

#1 Auction.com

Auction.com launched in 2007, and unlike many other auction sites, it also offers properties that are being auctioned off by third parties, which significantly increases the number of auctions that can be viewed on the website.

Pros:

• Closing usually takes 30-45 days.
• Their auctions are offered nationwide.
• Auctions included on the website may also be from third party services, which can increase the number of properties auctioned on the site.
• Extensive help center for buyers with forum.
• Easy to navigate website.

Cons:

• Buyers need to be aware of the different fees for real estate auctions.
• Information for properties by third-parties may not be complete.

#2 Hubzu

Hubzu was founded in 2009 and has locations across the world. This website sells residential properties and land. They also sell homes with traditional sales rather than just online auctions.

Pros:

• Website displays properties that are for sell via auction and traditional sales, increasing the number of homes you can compare and contrast online.
• Closing usually takes 30-45 days.
• Their auctions are offered nationwide.
• Auctions included on the website may be from third party services.
• Easy to navigate website with FAQs.
• Auctions will note if the reserve price has been met.
• Some auctions have an “End Auction Now” button that allows a bidder to become the instant winner.

Cons:

• Buyers need to be aware of the different fees for real estate auctions.
• Only has residential properties and land listed on the site.
• Liens are not discovered for the property until the title search process starts.

#3 Hudson and Marshall

Hudson and Marshall has been in business over 50 years and encourages buyers to utilize a real estate agent to help them through the process; therefore, they are considered “Agent Friendly” in the auction world. They sell residential properties, REO properties that are both residential and commercial, pre-market properties, lender-approved short sales, commercial auctions, and land auctions.

Pros:

• Closing usually takes 30-45 days.
• Auctions are offered nationwide.
• Properties are sold with a clear title unless noted in the description, which means that there are no other liens or back taxes on the property.
• Sellers pay the Title Insurance.
• Inventory on the website updates in real time.
• Some properties have a “Bid Now” feature.
• Properties are noted as “Reserve” or “Absolute.” “Reserve” means there is a reserve price that must be met for the seller to approve the final bid. “Absolute” means the property will be sold to the highest bidder no matter the price on the day of the auction.
• Easy to navigate website with FAQs.

Cons:

• Buyers need to be aware of the different fees for real estate auctions.
• Only shows real estate Hudson and Marshall is auctioning.
• Not all auctions will end in a bid being accepted.
• “Bid Now” feature is first-come-first-served, and the seller take bids in the order they come, meaning that a property may be sold before your bid is reviewed.

#4 Williams & Williams

Williams & Williams prides themselves on being a fourth generation auction house, and as of April of 2016, has a little over a hundred auctions throughout the nation. This website offers both on-location and online auctions with dates when prospective bidders may view the properties. This auction website works with auctions that sell residential, commercial, luxury, land, farms, and ranches.

Pros:

• They offer a 30-day closing period.
• Their auctions are offered nationwide.
• Help center for buyers.
• Inventory on the website is updated in real time.
• Properties are auctioned with a reserve, unless otherwise disclosed as “absolute” or “without reserve”.
• Easy to navigate website.
• There is a section on financing for buyers who would like to explore financing real estate purchases.

Cons:

• Buyers need to be aware of the different fees for real estate auctions.
• Only shows real estate Williams & Williams is auctioning.
• Not all auctions will end in a bid being accepted as sellers in auctions with a reserve can take two weeks or longer to decide on the bid offered.
• Insurable title is included in the average closing costs.

Bonus List of Real Estate Auction Websites for Investors

Real estate investors scour the internet for investment properties they can quickly purchase at a great price. So, in addition to the featured list of real estate auction websites, here is our bonus list for real estate investors.

#1 RealtyBid.com is a leader in online real estate sales, having auctioned more than 100,000 properties online, and RealtyBid International, LLC is a Chronos Solutions affiliate.

#2 Xome has one of the largest, exclusive selections of real estate owned (REO), short sale, foreclosure, luxury, and commercial properties available at auction.

#3 US Dept of the Treasury Seized Real Property Auctions is a government web site that advertises auctions of seized Real Property for sale throughout the United States and Puerto Rico and includes single and multi-family residences; commercial and residential land; commercial buildings and warehouses; and operating businesses. These properties have been seized and forfeited due to violations of federal laws enforced by the U.S. Department of the Treasury.

In Summary

Whether you are planning on purchasing your dream home or looking for investment property, buyers should do extensive research before bidding. First-time auction buyers are well advised to use the services of a real estate agent, which may or may not affect the price paid for the property.

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