Potential Pitfalls When Buying Homes for Sale in Foreclosure Auctions

You should be aware of these issues when Buying Homes for Sale in Foreclosure

Investing in foreclosures is the hot topic in todays real estate market. In fact there is a ton of hype about getting rich quick investing in foreclosures. Don't believe it, you aren't going to be an overnight millionaire. Their are certainly opportunities for investors but you need to be well informed. I want to talk about some of the problems that you may have to deal with when buying homes or other real estate at the foreclosure auction.

When attending an auction to bid on a property you are required to have cash or a cashiers check with you. You will be asked to show the person in charge of the auction in order prove your bidding limit. No cash , no bidding - simple as that. There are numerous ways to come up with the money and we will touch on that in another article. Suffice it to say that bidding at auctions takes a significant amount of cash up front.

When you buy at an auction in most cases you probably won't have the opportunity to inspect the house. Owners of homes that are being sold at auction are under a tremendous amount of stress. They have the banks hounding them, investors trying to contact them all while worrying about where they are going to live. It's highly unlikely that they are going to give you the grand tour. So if you prevail in the auction process you don't really know what you have purchased. I have seen houses that look ok from the outside but when you get in, it turns out the owners were cooking meth in the bathtub. Buyers beware, you could buy yourself the biggest nightmare ever.

Know whats on the title report. There could be tax liens, first or second mortgages and other items affecting the property that would either make the purchase lees than profitable or a downright money losing proposition. Know what you are bidding on. If you don't know how to research the title then contact a title company and see what products they offer to meet your needs. A few dollars spent up front could save you from making a very expensive mistake.

You need to have a plan in place detailing what you are going to do with the property before bidding on it. What's your exit strategy? Will you fix and flip or hold as long term rental. Are you ready to be a property manager? If not, then you will need to find one. Maybe you are buying it for your personal residence. Once you win the bid at the auction you may have a tenant living in it (the prior owner). This might require you to go through an eviction process to get them out. The point here is to have your plan of action figured out up front. The more organized you are the smoother this will go. There will be problems so spend time to prepare yourself.

If the property appears to be good deal, there will be competition bidding against you. Figure out the most you can pay and show up with that amount. Often times people get auction fever and end up paying too much. Don't get wrapped up in the excitement, this is business!

Thanks for coming to the Real Estate Investing for Beginners blog.

Until Next Time