Pros & Cons of Buying Properties That Are For Auction
Information today travels at such speed and ease that by just a few touches, we can access vast amounts of data via our phones, tablets, and computers. We might not realise it now, but we probably are living in the golden age of bargain hunting due to the vast options available for us to choose from. Perhaps this means the advantage lies in the hands of the buyers, hence making it more of a buyers’ market than a sellers’. Just like everything else around us, marketing for property auctions too has moved into the online space.
Buying an auctioned property can be a smart real estate investment strategy if you know what you’re getting into. Setting realistic goals and proper research on the type of investment you’re delving into helps you understand the potential problems you could face as well as the benefits that you could take full advantage of along the way. Like any other type of investment, buying auctioned property has its share of pros and cons that you should take note of.
Pros: Lower Than Current Market Value
Every real estate investor would want to reduce some expenses when buying an investment property. This becomes even more possible with auctioned property as they are always cheaper than those sold in the market. Financial institutions on the other hand also want to try and sell off auctioned property as fast as possible to get their money, hence they usually put them out at a good price. (banks are unlike conventional sellers as they just want to obtain the money owed to them). Usually, auctioned properties are viewed as red flags for the bank and they try to adopt a ‘cut our losses’ mindset which in turn becomes a real plus point for buyers.
Pros: Possibly Better Financing
Technically, because auctioned properties are being sold are below market value, the investor buying an auctioned property would require to borrow less money as to a person buying at the market price. Hence, the investor would probably also pay a lower down payment as well as have a lower monthly repayment amount. Additionally, if the bank giving the loan is also the bank auctioning off the property, they buyer might also be able to negotiate a better financing deal with the bank as the bank will be eager to get rid of the property. This could translate to many goodies and waivers in favour of the auctioned property buyer.
Pros: Better ROI And Appreciation Value
When investing in real estate, the lower the property price, the higher the ROI (Return on Investment) is going to be. Since auctioned properties are cheaper, the have the potential to generate higher ROI. On top of that, when the property investor renovates and makes further enhancements to the property, this significantly helps boost the market value of the mentioned property and could reap in better than usual returns for the investor down the line when prices of property in the area appreciate.
Cons: Neglected Property Woes
It might be possible to find a reliable contractor to fix up an auctioned property, but it is always good to be prepared for the unexpected as well. Buying actioned property at whatever stage usually means the bank is not responsible for any repairs. Sometimes, investors are also not given the opportunity to inspect the property either and are required to buy it on a ‘as is where is’ basis. If not careful, associating oneself with properties such as these could very well be like opening a can of worms which would end up costing the property investor hefty sums of money. Another concern about properties such as these is that financing options are rather limited. All and all, if not appropriately done, investments like this could end up becoming a financial burden that burns holes into a property investor’s capital.
Cons: Stiff Competition From Other Bidders
While sometimes it might seem like the bank is in a hurry to offload auctioned property because it is raking up unpaid dues, this could also mean that there are many other property investors/ bargain hunters competing to buy this below market value piece of investment. Property investors should be careful when bidding because sometimes, other parties are also out there to make money, hence many scenarios could unfold. (e.g. real estate investors/agents deliberately pushing up prices for properties in that area due to their own vested interests). Always have a clear goal in mind and if things start to move off your intended track, it is always wise to back off, no matter how good the opportunity might seem.
Cons: Not Suitable For New Investors
Property investment generally is a great for novice investors especially ones that deliver good rental returns as it helps offset mortgage loan repayments. Investing in an auctioned property however is not something that is recommended for a beginner simply because the process is a little trickier, hence would more suit a seasoned campaigner. While simply doing research might not make the cut, it is always wise to seek advice from various sources (e.g. experienced financers, property developers or agents.)
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