Real Estate Investing Basics
Should You Buy A House at Auction?
Real estate investing has been on the rise, both for commercial and residential properties. Owning real estate diversifies your investment portfolio and provides long term benefits that you can continue to reap long after purchasing a property. Auctions are a great way for you to dip your toes into real estate investing without having to worry about shelling out tons of money for your first property. Regardless of your plans for your property, auctions are a fantastic way to invest in real estate.
Benefits of Residential Real Estate Investments
1. Stop Paying Rent
When you pay rent each month you are essentially throwing money away. That may sound harsh, but when you compare paying rent to paying off a mortgage it makes a lot of sense. If you choose to purchase a home in an auction, the money that you would be paying towards rent will be used to pay off your mortgage. You’re still spending money, but now you are paying off an asset that will belong to you – so it all evens out. Plus, after you pay off the mortgage that money can be invested in other areas of your finances!
If you are taking care of your home you are likely increasing it’s value. Every time that you make an upgrade you are adding value that will pay off when you go to sell the property. Changed the hardware in the kitchen? Repainted the exterior? Put in new carpet? All of these renovations add up and let you list a higher asking price. Your home will appreciate over time as long as you are performing proper maintenance.
3. Additional Income
Purchase a home at auction and then rent it out! Instead of paying rent, be the person who collects it! If you don’t plan on living in the property yourself, renting it out is an amazing way to make money. Your renters will essentially be paying for the mortgage each month, but you will own the property. Plus,
once everything is paid off (or if you charge higher rent that your monthly payment) you will have an additional income source. Bonus tip – purchase a duplex and live in one unit while the rent from your tenant pays for the mortgage. Then you aren’t paying for rent or a mortgage!
4. Fix & Flip
You have probably seen HGTV shows where a team of people purchases a less than stellar property, completes amazing renovations and then sells it for way more than they paid for the home. For many people this sounds like a great way to make some extra cash while developing their DIY skills. House flipping can be extremely profitable, especially when you pick up a property in a foreclosure auction.
Do all of those things sound good to you? Then it might be time to consider purchasing a house at auction! Like we said, purchasing a residential property at an auction is a great, low-risk way to start investing in real estate. When you start looking at auctions, there are a few things that you will want to do to make sure you are ready to jump into real estate investing.
Note As-Is/Subject to Approval Properties
When you are looking at properties make sure to understand any and all selling terms. One of the main differences between an auction and traditional real estate sale is that the property will likely be sold As-Is. This means that you will be sold the property exactly as it is. You won’t be able to negotiate any renovations from the seller, since most of the time banks and other third parties are in charge of selling the properties. Another term to look out for is Subject to Approval. In most foreclosure auctions financial institutions are looking to recover as much of their loss is possible, so they may have to approve the offered amount to make sure that it will be enough for them.
Inspect the Property
After sorting through all the information and pictures that you can find online
for the property, look for inspection times and dates and then go check it out yourself in person! Assess any major repairs you will have to make and evaluate if the property suits your needs. If you’re planning on living there you will want to like your house! Try to think objectively and remember that this is a real estate investment.
Assess your Finances
Before you start bidding on a property, make sure you know what you can afford to pay. Sit down with your bank and get a preapproval for a loan if you don’t plan on paying for the property outright. Consider the interest rate that you would be paying and evaluate the costs of any repairs that might have to be made. Just because you can afford the base cost to bid doesn’t mean that you can afford to make all the repairs you want. We never want a buyer to have to foreclose themselves!
Residential real estate is truly an incredible investment and that can save you a lot of money and bring you additional income! If you have further questions about real estate investment, we would love to talk with you. Feel free to contact us here. If you are ready to start browsing for your next investment, click the button below to head over to our auction site!