I am currently doing a series on my blog covering a little about each of the types of niches you could consider when investing in real estate. Go here to go to the beginning of this series.
I am only covering this niche here in my blog to make sure it is understood that we are very much aware of all that it takes to buy properties at Public Foreclosure Sales. However, it is the only niche I am going to advise beginning investors to stay away from. For this reason, I’m only going to spend a little of our time on this niche.
In my opinion the risks outweigh the potential for gain to the point that I see no reasons to consider buying property at public auctions in today’s market. Public Foreclosure Sales, also called Courthouse auctions, are fraught with risk.
- What are downsides of this niche?
- Real estate investors need to be aware these foreclosure sales — called Trustee’s Sales, Public Foreclosure Sales or Sheriff’s Sales— are a required part of the foreclosure process and are different from the public auctions run by auction houses on behalf of lenders, homebuilders or home sellers. The word auction used to describe these sales is actually extremely inaccurate as the minimum bid usually starts at the total amount owed to the mortgage lender which in this market is usually way over the value of the property.
- Bidders are generally not allowed to inspect the property (and often occupied by angry tenants who are losing their home).
- The property or title may not be insurable, and in 11 states, the prior owner, sub lien holders, or even the Internal Revenue Service may redeem the property within a set period.
- “Winning” bidders are essentially buying the 1st position of the loan. Therefore, buyers need to determine if there are senior liens, unpaid property taxes, IRS income tax liens, mechanic’s liens, judgment liens, easements or zoning violations before buying. All property liabilities become your responsibility whether you know about them or not, when you buy a property at any public foreclosure sales.
- All sales are final the day of the sale – no inspection clause or addendum of any kind is allowed.
- The terms are fixed (There is no negotiating).
- Competitive bidding combined with a declining market leaves little room, if any room at all, to profit.
I believe buying foreclosures at the courthouse steps is one of the most dangerous ways of buying real estate. Before investors consider public foreclosure sales , they should learn how auctions are conducted, what special ground rules apply and what risks are involved. I would also urge potential foreclosure investors to do plenty of research on the property ahead of time. Moreover, I recommend you know your state laws. For instance California buyers should read and understand the California Civil Codes, section 2924 and 1695, covering some of the legal aspects of foreclosures in that state. Buying a home at auction is a complicated procedure and the rules often vary from state to state. There is a lot of homework and legwork that has to be done. These are just some examples of potential problems facing auction investors.
In summary, if you know the rules, you might be able to find a profitable deal. However, if you don’t know the rules of the game you are most likely going to find yourself financially upside down with a property you wish you never laid your eyes on.
How do you find out dates, times and properties to be sold at public auctions?
In case you are still interested in persuing this niche, I wanted to share where you can find properties going to auction in advance of auction day. It is required to list impending foreclosures in a local newspaper. Knowing where these are listed in your area is helpful. You would also be able to find this information in County Records. Some Counties offer this information online. You may also buy lists from the same resources listed previously for pre-foreclosure lead lists in my blog.
To learn more about 12 of the most popular real estate investing niches, please enjoy the articles I have written detailing how to use them and grow your real estate investing business. Enjoy!