What is two stories tall, covered in long green fur and smells like old, wet dogs? For a lot of people, that would be their mental image of an investment house. The truth of the matter, though, is really much more complicated.
Certainly, there are investment properties so dilapidated that it’s hard to imagine anyone living in them, but many more are in a fairly decent condition.
I can help you scope out the good ones, but frankly, you’ll get first dibs at a lot of the best units if you spend some time haunting the post-foreclosure auctions held both on and offline. No more green shag for you!
How a Home Ends Up On the Auction Block
When it comes to a foreclosure auction, there’s really just one way that a property ends up on the block: someone doesn’t make their payments and the bank seizes the real estate securing their mortgage. For most mortgages, this means the former owners were more than 90 days past due. This could be because they couldn’t afford the house anymore due to some major life change, or maybe they were part of a financial scam.
Known as “jingle mail”, these scams were really common during the Great Recession along with the steep decline in real estate values that resulted. Homeowners would realize they couldn’t afford their adjustable rate mortgage once the interest rate reset, and since they couldn’t refinance they’d end up there sooner or later. Others just knew how far underwater they were and weren’t willing or able to hang on long enough to correct the situation.
Just because a house goes to foreclosure auction doesn’t mean that it’s going to be a total nightmare for a buyer. There are lots of nice properties that have been thoughtfully and strategically abandoned. The trick is figuring out how to tell them apart from those that are basically ready to be bulldozed over. This is where an appraisal expert and I can help you in a big way.
Getting the Most Out of a Foreclosure Auction
There’s a lot to learn about buying houses at post-foreclosure auctions, but if there were just three pieces of advice to offer, these are probably the most important:
- Bring cash or a cash equivalent. You can’t walk into an auction like this and expect to be able to spend a month arranging financing. Most will require at least five percent down on the day of the sale, and the balance due soon after. Anywhere from one day to a week is pretty normal. This is why investors are generally the only people at these auctions. They often have credit lines that make it easy to buy on the fly.
- Base your top bid on the value of the home minus any repairs you anticipate. If this is your first home auction, find out long ahead of time if you will be allowed to inspect the property prior to the big day. If no, keep that bid low because you never know what may crop up. If yes, take a licensed home inspector with you and let them do their job on the day the house will be open. They’ll be able to estimate what the visible, necessary repairs will cost so you’re not going blindly into the auction.
- Keep in mind that the homeowner can still redeem that home within a set period of time. It’s a common misconception that when you buy a home at a county auction, either for non-payment of taxes or foreclosure, that it’s yours. It’s not necessarily. Most states allow a redemption period for the former homeowner. Should they be able to get enough money together within the provided window to solve the financial issue that landed their home in this state to begin with, your rights to the property will be terminated. So, whatever you do, hold off on any work or spending on the property until that window has expired.
Don’t Go Unprepared, Let Your HomeKeepr Family Get You Ready for Auction Day
When you’re walking into a new venture, like buying homes at auction, it’s important to surround yourself with experts who can help guide your first few transactions. After all, learning the hard way is a lot more expensive than learning from people who deal with homes for a living. Where would you find someone like this? Consider joining my HomeKeepr community. All the experts you could ever need are there, housed together, under the same digital roof. Contact me anytime with questions. If I don’t have all the answers, I will find someone who does!