Pros and Cons of Investing in Auction Homes

[Nicole Van Logtenberg]

Hello, I am working on investing in my first home. After listening to Ashley Hamilton's podcast I am interested in making the most out of the money I have and bid on some auction homes. I am not very clear on all of the added expenses if you are to win a bid, also if there is opportunity to back out of the purchase if there are a lot of added expenses that you can't afford. Is it too risky taking the time to rehab a destroyed home to buy, flip, and hold? 

As a first time rental property investor from San Diego investing in a dangerous area in Detroit, do you think I would be making a good investment buying a home for under $5K in auction, without seeing the property, needing to make serious renovations and unsure of hidden fees and taxes?

This way of investing seemed interesting and thrilling to me but I may be better off playing it safe with a move in ready home 

Thank you for all your help in advance. I look forward to getting some advice on this topic.

All the best,

Nicole van Logtenberg

[Bala A.]

You know the Pros of buying Auction properties. Which is Lower end prices. That is great, but just just be wary of a few things, as I have purchased a number of Detroit properties from several auctions (Hubzu, Auction.com, Wayne county, etc etc). Here is a list of things one needs to be careful about purchasing at an Auction:

1) Auction properties are most often Quit Claim Deeds. Not Warranty Deeds. Because the bank which is selling the property does not know of the "Other" liens the mortgager might have taken/incurred. Like a second mortgage or a contractor's Liens etc. You may have to Quite the Title through a court action after purchase.  

2) Beware of the words "Special Warranty Deeds" it is the same as Quit Claim Deed. Just Old wine in a New Bottle. I am seeing this term being used frequently on Auction.com.

3) Auction properties are not subject to inspection or finance clauses. You may have to buy the property unseen (so give yourself enough contingency)

4) Some of the Auction properties come with possession at closing. So you may be involved in evicting your 'tenants'.

5) County Foreclosure (like Wyne county) will have a redemption period. Meaning you pay the price of the house and wait for 6 months before you know whether you have got it or not. The home owner can 'redeem' the property under you. And most often other local wholesalers will cut a deal with the owners and you may just have to move on to the next one.

And there can be more, but these are the main ones...