Online auction sites like Auction.com, Bid4Assets and Hubzu have made the property auction process, once exclusively the realm of full time investors, into a wide open field where even beginners can find great opportunities with minimal price. That said, while online auctions have made the process more accessible and easier, they have by no means reduced the risks that buying at auction entails. In many ways- partially because bidding has gotten so much easier – the dangers of buying at auction have grown.
Here are 5 basic things to know before you buy property at auction:
1) Know your limit– Before you sign up at any of these sites – really before you think about buying any property at all – you need to think about how much you are going to spend. This is particularly important in online auctions where bidding is easy and seemless. You are playing with real money and need to know exactly what you plan to spend before you start.
2) Pay attention to the occupancy status– Many auction properties are put up by banks or private individuals because the property is in distress in one way or another. Many times, this distress is a tenant. Be well aware that in some states (Illinois being one of them) eviction is sufficiently difficult and time consuming that sellers will part with a property rather than carry it through the process. This doesn’t mean that every occupied property is a deal-killer, but it does mean budgeting some extra money and time to access the unit and recoup your investment.
3) Have the cash– In most cases, online auctions are just like normal ones. You are expected to pay within 24 hours. If your money doesn’t have that kind of velocity, then you may not be cut out to search for property in this way.
4) Pay attention to the fees– Most online auction houses survive the same way traditional ones do: with fees. These can range from a percentage based on tiers of sales price to a flat fee per thousand dollars in purchase price. You must take this into account before you finalize your budget.
5) Do your research– Competition can get the best of us. Don’t overpay. Remember that we make money when we buy, not when we sell. If the bidding passes the value point for a property then don’t push it. There are more deals and more properties out there but once you overpay, you are stuck with whatever you got.
What’s your experience with online auctions? Do you have any other tips you think are missing?
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