Distress Auction, Hidden Market Potential
I have been involved in buying foreclosure auction properties for over three decades, from mortgage foreclosure to trustee sales and tax deed properties. Most of the buyers and investors at these sales are cash buyers. Bidding at these auctions is very competitive; sometimes you win, and sometimes you lose—that's the nature of the business. However, you learn more from your losses than your wins.
I always get this question: "Will banks loan you capital to bid at the foreclosure auction?"
Banks shy away.
There are some good reasons why many lenders shy away from financing properties going to auction. At the top of the list is the inability to inspect the interior of the property. In many cases, these properties are sometimes occupied or vacant. If the lender cannot see inside, the chances of them financing it are very slim to none, which poses a risk for the lender. Plus, there is no guarantee that you’ll be the successful bidder. If you are, however, the successful bidder at the auction, banks and hard money lenders will lend you capital to rehab the property since they will be the first lien holder on the property.
Due Diligence
As professional real estate investors who specialize in “foreclosure distressed properties,” there is a lot of work that goes into buying auction properties before the sale. With no interior access, for example, we drive by the property, take photos, conduct title searches, perform market analysis of the neighborhood, assess comparable sales, estimate repair costs, and evaluate what to look for when inspecting the exterior of the property. We also determine the maximum amount to bid based on the loan owed to the foreclosing lender.
Risk Mitigation
Most buyers at foreclosure auctions are seasoned investors who are well-equipped to take on the challenges that come with purchasing distressed properties. Experience, the ability to handle renovations, and a clear exit strategy for resale are imperative to your success. Plus, you need to have your team in place to execute your plan.
Be clear, be confident and don’t overthink it. The beauty of your story is that it’s going to continue to evolve and your site can evolve with it. Your goal should be to make it feel right for right now. Later will take care of itself. It always does.
By Wesley Barney