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Should I Buy Houses For Cash at an Auction?

By
Education & Training with Invesdoor Corp.

A tradition as old as business itself is that of seeking to bid on desired products or services. It simply means the highest bidder wins the negotiations. Our culture is colored with scenes of rapidly talking auctioneers amusing their audience as they moved countless dollars of merchandise with the sound of the gavel. Big nationwide auctions have recently made headlines but what is actually better for the average short sale investor…REO or bank auctions? Let’s examine the pros and cons for each.

Purchasing a property via auction frequently entails a commitment to all outstanding debts including unexpected liens and other judgments in addition to those for which the auction is taking place. By purchasing a bank owned property you will typically have assurance of clear title or at least a complete awareness of other fees or liens due.

Property sold at auction frequently has tenants or prior owners still in place, causing new owners to engage in immediate action in order to take possession. Bank owned properties have often evicted former occupants thereby eliminating the need for out of pocket legal expenses. Just keep in mind, this is changing and some short sale investors have encountered squatters. On the other hand, depending upon your plans for the property, having paying tenants may be a strong positive. Personally, I have never favored inheriting tenants. Be careful!

Auctions require advance funding to be in place while bank owned properties may actually offer added terms or beneficial interest rates in order to move a non-performing property off their portfolio. Since it can cost a lot of money for a bank to keep a property on their books, one way they entice others to purchase is by negotiating the terms of the finance offers. This is especially true in areas where lenders may be limited by the number of homes they can release on the market (ie, federal regulations prohibit “dumping” in certain neighborhoods – often the same ones where many non-performing loans were originally written). By offering highly favorable financial terms, banks are able to shift properties off their books without continuing to drive down prices.

The bottom line is that short sales are one of the best bargains of all but don’t underestimate the value in bank owned properties. Auctions are a lot of fun but not always indicative of the best value especially for those just starting out or who only intend to purchase one or two properties. People often behave irrationally at auctions because of the competition and frequently make decisions based on emotion. In my company we aid cash house buyers to acquire investment properties either with all cash or by providing funds from our private lenders. Financing in this manner allows the cash buyer to leverage his/her money so that they can do more deals.

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C.J.Lauria

founder of Invesdoor

916/419.3442 office
916/206.3442 cell
 
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