Should you bid?

Innumerable Houston investment houses are listed on the MLS. With the recession of 2008, a number of homes entered foreclosure. These foreclosed homes are seen as a winning opportunity by many real estate investors who are lured by the buy/fix/sell or buy/fix/rent formula.

Where do you buy these from?

Usually, homes that are foreclosed by the banks are auctioned. You can therefore, buy such properties at auctions. Can anyone buy at auctions? Is it safe? What do you need to know to buy from auctions? What are the benefits of buying from an auction?

Advantages

Although buying Houston investment houses at auctions has its own pitfalls, investors see many advantages of the same.

• Foreclosures first enter auctions. It is the first chance for investors to get their hands on the best properties.
• Additionally, as the bidders at auctions are fewer than the buyers on the MLS, competition is lower. Thus, prices at auctions may be lower.

Notwithstanding these benefits, there are a few drawbacks in buying properties at auctions.

Drawbacks and solutions

• Properties are sold at auctions when the owner is unable to pay his mortgage debt in time. The house may be in a completely distressed condition. Furthermore, it may be burdened with the issues like tax liens, contractor liens or a second mortgage.

Solution: Take the assistance of an auction house to ascertain that the property is free from title issues.

• Properties sold at auctions typically demand a huge amount of cash. The down payment amount depends on the property and the auction house. However, each one will surely demand a huge amount of cash. On the other side, properties owned by banks (REO) have a host of other financing options.
• Sometimes, you may not be able to purchase the property even after being the highest bidder. This happens when the auction house would have set a minimum acceptable reserve price.

Solution: To avoid unlikely surprises like this, keep yourself updated with the terms and conditions of the auction.

• In the case of properties sold at auctions, property inspection is typically not allowed. You may find the property in a distressed condition after having purchased it. You may not be aware of what you are getting into. You might end up with structural damages or dilapidated walls, broken panes and so forth. In such cases, the rehabilitating costs will eat into your once-attractive deal.

Solution: Conduct due research on the property and the neighborhood before the auction.

• In certain cases, the owner might still be occupying the property. You might have to go through the unpleasant experience of getting the property vacated.

If you want to buy a property at an auction, it may be a daunting experie. You really need to do your homework well, to rule out the drawbacks and enjoy the benefits.

Better option

A smart option is to purchase bank owned properties (REO), which are free from these drawbacks. To invest in a promising REO, the best solution is to take the assistance of an experienced Houston real estate wholesaler, who will assist you in buying the apt property.

The author, Robert Wills is attached with New Western Acquisitions, a real estate firm who specialized in real estate investment properties,houses and real estate wholesaler.