Online Real Estate Auction Sites Can be a Great Resource
Online real estate auction sites can be a lot of fun and prove themselves to be a great tool for the seasoned or active real estate investors. When you know the various nuances of real estate and what to watch for, using tools like an online auction site may have great merit for you. These sites are growing in popularity and when used correctly, can help the active investor find great deals! Side note: I am often asked what an active real estate investor is... there are two types of real estate investors, active and passive. Real estate investing in general is considered a passive investment, meaning income is derived from monthly cash flow returns generated from an investment, so as a real estate investor you are a passive investor. Looking deeper, this is the passive investor who simply wants to make a purchase and sit back and let the property manager run the rentals and collect the rent checks. Then there is the active investor who is very much interested in the acquisition as well as daily and weekly aspects of insuring everything is running smoothly. These active investors tend to study real estate and understand at a much deeper level the various nuances of real estate.
OK, back on track.
It is always important to remember a few simple principles when bidding on online auction sites for real estate:
Know the area. Getting a good price is only a good deal if you do not have unexpected surprises, so make sure you know the true values of the area before placing a bid. Learn what you can about the property tax to the property. When buying in areas outside of your personal market, many are shocked at how tax bills can vary. In some areas a $100K home can have an annual tax bill of only a few hundred dollars per year, while other markets have a tax base of a few thousand dollars per year.
How about insurance? If you are close to water, you may be required to carry flood insurance. Additionally insurance premiums can change by location just as the tax premiums do, from hundreds to thousands per year.
Establish clean title. Buying a piece of real estate is only part of the equation. It is imperative to buy a clean and marketable title as well. When using an online auction site, make sure there are no encumbrances on the title. Things like liens to the property or encroachments to the property, or redemption periods. These surprises can be costly. If you do not understand these terms and what they mean, you will definitely want to enlist the help of a licensed realtor (always suggested). Regardless of how experienced you may be, rules and regulations change very often and you want to make sure your investments are safeguarded.
Have an understanding of whether you have a redemption period. Most of these online auction sites will display the redemption period, if any, on their listings. However, you will want to do your diligence to make sure.
Identify whether you have the ability to place a bid on the online auction site and then do your diligence. Occasionally there is time allowed for inspections such as a 7 day inspection period. Other times there is no such time period allowed for due diligence. In this case, once you place your bid and it is accepted, you bought the property.
Establish if there is a buyer’s premium to the bid. Often the online auction sites will accept bids and then the winning bid will have a buyer’s premium. These can range from a flat fee, say $100 to a percentage of the sale such as 5%.
Caveat Emptor (meaning, let the buyer beware) purchasing an auction property does not come with seller disclosures. It is up to you, the ACTIVE investor, to do proper diligence. Your realtor can assist with the important aspects that need to be looked into.
When considering these important aspects of investing, you as an active investor, should be well prepared to capitalize on online auction site sales. Please give me a call today if you have any questions about online real estate auction sites or other real estate investing topics! 941-718-7761
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