I wrote about the incredible opportunities at property auctions recently. To remind you about the possibilities here, I’ll share my own experience. A couple of years ago, I bought a double-story link house at an auction for $220,000, below the market price of $300,000.
I spent $13,000 to do up the house and then sold it seven months later for $280,000. Despite having to pay the RPGT that was still applicable then, I still made a decent profit. Just as important is the fact that I incurred zero risk during the whole episode. Decent profit, zero risk – it was a perfect investing story.
A couple of my friends did even better. One bought an apartment worth $200,000 for just $98,000. A second friend bought a house worth $360,000 for $240,000. Both properties were purchased at auctions. And these are the ones that I have personal knowledge of. You can bet there are even more exciting and grander stories out there.
So there are great opportunities at property auctions. The main attraction is of course the low price of the properties. You can often get discounts of 20, 30, or even 50 percent of the market value of the property. What’s more, the supply is plentiful. You’ll run out of money before you run out of properties.
At the same time, property auctions come with their own sets of problems. Like all things involving money, there is a catch at property auctions as well. (If you have not realized it yet, there is always a catch somewhere when it comes to investments. While some are obvious traps, many others are not so obvious – you only know about them after you invested your money!)
In fact, there are a lot more traps at property auctions than in most other investments. So if you don’t know what you are doing, instead of making money, you could be exchanging your hard-earned money for a permanent headache!
Auction Traps You Need To Aware Of
Let me share with you a couple of traps. One of them is buying a property because it is cheap. You read the proclamation of sale: the reserve price is 40 percent off the market value. So you went to the auction, made a bid, and actually won. The property is now yours.
In terms of price, you’ve won big. However, you still lost because the property is in a poor location. The place is abandoned – not just your property but the whole area! You cannot rent it, sell it or even use it. Who’s going to stay in a place where there’s no living soul for 50 miles!
By the way, this is not just a theoretical example. There’s a least a couple of areas, not far from the city, where this is actually happening. The new owners found out that they cannot do anything with the properties. They cannot rent it, sell it or even refinance it because no banks are willing to do so.
They cannot even use it as a warehouse because thieves keep breaking into the property. And you know you are in trouble when you cannot even use the place as a warehouse.
So don’t get excited just because the price is cheap. When it comes to properties, there’s often a good reason why the property is cheap – it’s in a poor location. And because of the poor location, very few people want the property.
This means that the price will be cheap for a long long time. The good thing is that your great-grandchildren may be thanking you for buying the property 70 years from now when they sell the property for a million dollars. You however will be kicking yourself in the meantime!
Another trap is buying a property that is tenanted. Practically all the auction properties are sold on an ‘as is’ basis. What that means is that the buyer is buying the property as it is – warts and all. If the property is damaged, it’s up to the buyer to make the repairs. If the property is occupied, it’s up to the buyer to evict the tenants. How is his problem? The seller does not want to know or even care.
Now if the tenants are willing to move out, then the buyer is lucky – very lucky. If not, then his problems have just begun. He may need to beg, plead, or chase them out, which is easier said than done. He may need to go to court to evict the tenants. That’ll take months.
Worse, the buyer may not even move out even with the court order. What will the buyer do then? Cry would be a good thing. Imagine that: it’s the buyer’s property. He has paid good money for the property but is unable to exercise his rights over it. Meanwhile, the tenants are staying there – rent-free, mind you – and thumbing their noses at the buyer.
Those are just two of the traps waiting for the uneducated buyer at property auctions. There’s plenty more lying and waiting in the shadows. I can’t tell you the whole bag because of a lack of space and because some of them are unprintable!
So to summarize, you need to do some homework before you can consider going for auctions and bidding for the properties. The homework will include visiting the property, checking the title, and checking the outstanding bills. It may sound like a lot of work but considering the rewards, I think it is a worthwhile thing to do.
But then, all worthwhile things require time, effort, and sacrifices. And making money is certainly a worthwhile thing.
10 Strategies to Win A Real Estate Bidding War
With the real estate sector being one of the major contributors to the global economy, investment in this segment has gone up significantly over the last few years. As more and more investors look to find a foothold in the vast market, the competition also tends to play high stakes with the investors.
Bidding plays an important role in determining the ownership of any property. However, winning a bidding war depends as much on planning and strategizing as on luck of the bidder. It is also important while planning your bidding strategy that you don’t get too caught up in the high-intensity drama of bidding and end up paying more.
Here is a list of strategies that can help you win any major real estate bidding war.
Getting the money
The most important aspect of entering into a bidding war is to get the money ready. You can take help from the banks if necessary. With the monthly carrying cost increasing only slightly more and more people are looking to pay more for homes.
Doing some prior research work
Investing in property is one of the major investment decisions, more time should be given in analyzing the true value of that particular property. The property you are investing in should be worth the money you are putting in.
Don’t get intimidated by high bidders
With the price of a property going up, it’s not necessary that you go on bidding to get what you desire. You must have a clear idea on what your needs are and what amount you can spare.
Get adequate information about the broker
There are not many well-known brokers in the market. Only about 20% of the total brokers operating have sound knowledge on the business aspect and that is why it is necessary to choose wisely.
Keeping an eye on mortgage lenders and the rates
The lender providing you a mortgage should be genuine and that is why you should have a written record of the details of the loan and mortgage that has been taken. Similarly, mortgage rates tend to fluctuate based on the performance of the market.
Making a clear offer
Making a clean offer is important because it ensures that the bidding process is not dependent on loans, selling your previous house, or even waiving the inspection.
Giving it a personal touch
Even though it might not sound to be an encouraging option, sending a letter to the seller informing him or her about the necessity of that particular house in your life can be crucial. This can help you get personal favor which you would not be getting otherwise.
Knowledge on the right time for walking away
With developers looking to strategically place the prices of the properties in order to attract the maximum investment, it is important that you do not get too carried away by the high prices and end up spending more than you had calculated.
Providing the seller with a certified cheque could ensure that you mean business and prevent him or her from selling it elsewhere.
Being more flexible
Lastly, being flexible to the demands of the seller can be an ideal option as it would help you to avoid any additional conflict with the seller.
In the end, thus it can be said that planning and strategizing are the most important parts of real estate investment. If you can do these things well you can guarantee positive results.