The typical real estate foreclosure auction has become synonymous with today’s best deals, and for good reason: few other platforms can offer investors a better deal with more attractive spreads and profit potential. If for nothing else, the acquisition of a foreclosed property at auction typically suggests the respective lender is merely trying to recoup some of their losses, resulting in a great deal for whoever places the winning bid. It’s worth noting, however, that real estate foreclosure auctions aren’t guaranteed to result in the best deals you have ever seen. While they are chock-full of great opportunities, it’s only those that know how to navigate the real estate foreclosure auction process that stand to benefit from it.
If you want to know how to participate in a foreclosure auction, you should familiarize yourself with the process, but I digress. Knowing what to do is only half the battle. As an investor looking to acquire a deal, it’s equally important to know what not to do and the mistakes to avoid. Let me explain.
1. Don’t Forget Your Other Options
I want to make it abundantly clear: Buying a home at a real estate foreclosure auction is a great strategy, but it’s far from the only one you should consider. If for nothing else, foreclosure auctions should be a small piece of an otherwise larger acquisition strategy. Remember, real estate is a numbers game. The more opportunities you give yourself to purchase a good deal, the more likely you will be to succeed. So while I absolutely want you to consider looking into buying a foreclosure property at auction, do not do so at the expense of potentially ignoring a better deal elsewhere. Treat the situation like any other and weigh your available options.
That said, I don’t want investors to assume foreclosure auctions are the only place to find a great deal. While it’s true that said auctions house some of the best deals in the industry, they are far from the only place to land a viable investment property. What’s more, foreclosure auction deals often come with a caveat. It’s not uncommon for properties to be cheap, as they most likely have one or several blemishes: liens against the property, repairs that need to be made, and so forth.
2. Don’t Ignore A Helping Hand
Today’s real estate investors have access to more information than ever before. With the simple click of a button or visit to a local municipality, vital information can be gleaned on everything from processes to the actual properties themselves. It’s worth noting, however, that access to information isn’t limited to tangible documents or online sources. In fact, today’s most prolific investors know it, and it’s time you did, too: the best information we have access to is often found in the expertise of our predecessors — those that have come before us.
With that in mind, you simply can’t ignore the fact that there may be someone out there (even someone close to you) with more knowledge on the topic of real estate foreclosure auctions than yourself. Even if you are a self-proclaimed expert, there is absolutely no reason to ignore the help of another. Then again, the help of another could be invaluable to those that are, well, less than familiar with the entire process.
If you are new to real estate foreclosure auctions, do not assume you have to go about it alone. There are plenty of individuals willing to lend a helping hand, and it’s in your best interest to accept it. Namely, real estate agents and attorneys well-versed in the intricacies of the foreclosure market are going to be your most valuable sources of information. Not only should they be able to point you in the right direction with each impending decision, but they may even be able to help you navigate the differences between pre-foreclosures, short sales and bank-owned properties, as each inherently comes with its own set of nuances.
To the best of my knowledge, the greatest way to tip the scales in your favor over the course of a foreclosure auction is to mitigate risk. And what can reduce your exposure to risk more so than someone that has been there and done the exact thing you are trying to do?
3. Don’t Exercise Ignorance
In no other industry is a healthy educational foundation more important than that of a real estate investor. If for nothing else, an already complex industry can quickly become insurmountable in the face of ignorance. That said, a sound knowledge of what you are heading into, especially in the case of a real estate foreclosure auction, can take you farther than just about everything else combined. So I implore you; do not exercise ignorance at your first auction, or ever. There is no faster way, at least that I am aware of, to sabotage your efforts of running a successful business.
Instead, mind due diligence and see to it that you are more than prepared to participate in a real estate foreclosure auction. After all, only those that are prepared stand a chance at acquiring a property that can serve as a boon for their career.
Do yourself a favor and study as much as you can before attending your first auction. You will know exactly which houses will be up for sale, so there is absolutely no excuse to go into a bid blind. Learn what you can about the property through public records, visiting it before the auction and talking to the right people. In addition to the property, learn as much as you can about the neighborhood and comparable sales. These will tell you what to expect in the event you win the bid. It’s true what they say: a good real estate education really is power. The more you know about a home going into an auction, the more likely you are to buy a home that will contribute to your bottom line.
4. Don’t Ignore Common Practice
It should be noted that not all real estate foreclosure auctions operate in the same way. Like just about everything else, it’s safe to assume each auction will come complete with its own little nuances. Having said that, it’s in your best interest to learn what they are. Do not, under any circumstances, attend a real estate foreclosure auction without having at least some idea of how it will operate.
For example, you will want to know how to pay for a property in the event you place a winning bid. Some auctions will require immediate payment, so it helps to have multiple cashiers checks for different amounts. Others, however, may let you pay at a later date. Find out how the one you are attending likes to receive payments. And don’t stop there; learn everything there is to know about an impending auction. When does it start? How early do you need to show up? How do you place a bid?
Understanding the ins-and-outs of a real estate foreclosure auction will go a long way in helping you land a deal, so get ahead of the curve and learn all that you can prior to attending.
Knowing Is Half The Battle
Sometimes, finding a deal at a real estate foreclosure auction has more to do with what you shouldn’t do than what you know to be right. If for nothing else, the most successful real estate investors in today’s market are those that have reduced their exposure to risk. At the very least, it stands to reason that those who are fully capable of mitigating risk will find the scales tipping in their favor more often than not.
It’s worth noting, however, that it’s never possible to remove risk from the equation altogether. There will also be an inherent degree of risk in investing, no matter what you do, but I digress. It’s entirely possible to reduce your exposure to risk, and the best way I know how to do that at a foreclosure auction is to exercise the points I highlighted above.