6 Things To Do Before Participating in Foreclosure Auctions

Posted on: January 11, 2011

Categories: Buy, Investors

Author: lbuen

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Foreclosure Auctions

Foreclosure auctions are a treasure trove of lucrative deals to real estate investors for they are rich sources of handyman specials. However, before embarking on this treasure hunt of bargains, doing one’s homework is essential to come prepared, ensure that you make a killing and avoid walking into a trap of losses.

  1. The first thing you have to do is secure a “bidder’s package” which contains useful information including the particulars on the auctioned properties such as property description, a report on the title, survey and financial data.
  2. Decide on which property or properties you are going to bid on in advance and get to know it. Drive by the selected property to give you a picture of its condition so that you can estimate the needed repairs. Hiring professionals for assessing the property and estimating repair costs will be wise especially for newbie rehabbers. Although this will also entail costs. This visit will also acquaint you with the neighborhood. Keep in mind to go for an ugly property in a nice neighborhood rather than a pretty house in an ugly neighborhood.
  3. Study the foreclosure laws of the state where the property is and note how much premium the winning bidder is expected to pay which usually comes as a percentage added to the acquisition cost.
  4. You also have to find out if there are any liens against the property which may become your responsibility once you have acquired the property, and how much is owed on the property. Typically, this last figure will also be the initial bid price. You can stop by the tax assessor’s office of the county for these.
  5. Another crucial homework you have to do is compute for the maximum offer you can bid. This cap will remind you to get a grip of yourself from overbidding lest you get carried away when the foreclosure auction becomes too exhilarating. Making an offer that exceeds this pre-calculated amount translates to a reduced profit, or worse, a bottom line in jeopardy. So remember to put your paddle down when it comes to a point where another bidder gave an offer greater than your ceiling. This amount is contingent to such factors as the market value of the property, your target profit and the cost of repair and other expenses.
  6. Having determined these figures, the next set of figures you have to work out are your own. Set aside the amount for the downpayment in cash or check. Some foreclosure auctions require a cashier’s check made out to the buyer for the amount of $5,000 which will become part of the 5% downpayment on the property for which you have won the bid. There are also several ways in which you can buy properties from foreclosure auctions with no downpayment. You can approach lenders who can provide you with no-down financing options, such as VA and FHA loans. For a smoother transaction, work out a pre-approval for a zero-downpayment loan.

All these seem to exact loads of work, but remember the aphorism, “Success always comes when preparation meets opportunity.” Skipping due diligence in this field is exposing yourself to the many pitfalls and perils of treasure hunting in real estate investing. So better do your homework!

 6 Things To Do Before Participating in Foreclosure Auctions
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