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How to Purchase a Rental Property at Auction

A man holds a gavel and a house model on a table, representing a real estate auction.Like many rental property investors, seeking a great deal could leave you to contemplate buying real estate at an auction. Nevertheless, you should be quite informed about numerous things before your first auction. Buying income properties at auction includes much more danger than purchasing them elsewhere. Although having solid information and a strategy can help reduce some of that risk, real estate auctions will never be apt for the gutless – or risk-averse – investor. Those comfortable with some risk proceed forward to find out the essentials of effectively buying a rental home at auction.

Risks and Benefits of Buying a House at Auction

The first aspect you should be informed before buying an income property at auction is that the process contains risks and benefits. Although houses sold at auction are offered below market value, many are in poor condition or have significant defects requiring extensive repairs. You may only be able to inspect the property after you buy, so this is one risk that may be difficult to mitigate.

Other risks of buying at auction entail the potential to overbid in the excitement of the situation and face potential delays after purchase as the property passes through several entities, state or country redemption periods, etc.

Conversely, auctions are a good spot to find real bargains on rental real estate. When you buy a home at a considerable discount, you can increase your cash flows and overall return on investment. Another upside is that you can take ownership of the property quickly. Numerous times, auctions can transfer the title to a home within 30 days, permitting you to begin planning for your first renter promptly. That implies your property could start generating rental income quickly than a conventional sale.

How Real Estate Auctions Work

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 find a potential property, your next step is to gather as much information as possible about the property. Be sure to do a thorough comparative market analysis and evaluate the property’s potential as a rental home. Preferably, walkthrough or arrange an inspection of the property. Should that prove difficult – often it is – you could drive by and peek in the windows. It would be excellent if you conducted some investigations. Seek any occupants, liens, or other likely issues that may generate roadblocks to ownership.

To bid competitively at an auction, having enough cash on hand and financing lined up before you proceed to bid is critical. Commonly, to buy a property at auction, you will need at least 10% of the selling price for a deposit, a willingness to pay the remainder in full promptly (or within a matter of days, in some instances), and cash for administrative fees, survey costs, and insurance. Additionally, there are different types of auctions, so make sure you take your time to review all the auction rules and be ready to use them.

What to Expect at an Auction

Before bidding in a real estate auction, you must register and pay a refundable deposit of 5% to 10% of the property’s expected selling price. If the auction is in person, arrange to attend around an hour before the auction open to check in and obtain your official bidding card, which you will utilize when you bid. You’ll log in to the auction website to bid if the auction is online. When the bidding starts, you have to be aware of exactly 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 be substantially reduced.

In a matter of minutes, you will find out whether or not you won your auction. Should you lose, you will get a deposit refund. If you do, however, you may be required to pay for the property in full immediately after the sale. Some auctions necessitate you to bring cash or money order to make your payment shortly thereafter. Others will let you turn in the necessary money till the next day or several days. Ignoring this may result in losing the sale, forfeiting your deposit, and even being banned from participating in future auctions, so paying as instructed is absolutely vital. Then, 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, whether via auctions or another method, can be a difficult but rewarding project. Real Property Management Connection provides market evaluations and assistance on possible real estate purchases in Hudson and its vicinity. Contact us online or call at 727-279-7779.

Originally Published on Apr 2, 2021

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