Foreclosure Auctions - worth it?

Question

I'm still surveryin my options as I'm about to get into my first rental property. I live in south Florida where everything is pricey and I've heard of people going to auctions to buy homes that were foreclosed. What is the benefit and downsides of this? What does someone need to know before going into an auction? How much can you know about the property before you purchase it? What are the buying terms like?

Mohammed Rahman · Answer

Hey Cristian,I've heard mixed opinions on foreclosure auctions. The biggest thing is knowing what you're getting into before showing up. Auctions can move quickly, you typically need to have your financing or cash situation figured out ahead of time, and you may not have the same level of due diligence or access to the property that you would with a normal purchase.

A lot of newer investors get attracted to auctions because they hear about the potential discounts, but the discount usually comes with added risk. You need to understand the local process, timelines, title issues, liens, occupancy situations, and what happens after you win the bid. The logistics alone can catch people off guard.

If this is your first rental, I'd also think about what your overall strategy is. Are you looking to BRRRR, house hack, buy and hold, or something else? The right approach can change depending on your goals, risk tolerance, and how involved you want to be in the process.

Best of luck, and feel free to reach out if you have any more questions - my DMs are always open!

Vijay Friedman · Answer

@Cristian CentenoForeclosure auctions can be a great source of deals, but they usually require more preparation than a traditional purchase. I'd spend time understanding the auction rules, title issues, occupancy risks, and whether you'll have an opportunity to inspect the property beforehand. The more due diligence you can do before bidding, the fewer surprises you'll have after closing. Best of luck with your first rental!

Gina Stern · Answer

Hey Mary-Kate , your Foreclosure journey is really interesting, what state are you located in?

Ismael Reyes · Answer

Great questions. Foreclosure auctions can offer opportunities to buy properties below market value, but they also come with risks.

The biggest challenges are limited property access, buying “as-is,” possible liens, and having to move quickly with your due diligence and financing. Before bidding, investors should research the property history, title, taxes, comparable values, and have a clear exit strategy.

Auctions can be rewarding, but success comes from knowing your numbers and understanding the risks before placing a bid.

Mary-Kate Scurlock · Answer

In the middle of closing on my first foreclosure auction purchase, so I'll have a better understanding in a couple of months when i sell ( hopefully)!

I can't speak to Florida but the upside is that sometimes you can find unbelievable deals. The cons is that its super easy to be out on your butt if you miss a word while doing your due diligence/title search. Its very time consuming to do your due diligence compared to buying wholesale or on the MLS.

Never buy a property without doing your due diligence. The amount of properties that go up that have unextinguishable liens or is a situation where you've bought the second mortgage and not the first is... quite a lot. Probably 15% of those going for sale this month in my state are a 2nd mortgage or an HOA case that is junior to the main mortgage. So its not like its a one off thing. Its pretty common and you have to know how to distinguish between the two.

Depending on the state, before going to auction you need to ensure the property owners/heirs were served and that the correct judicial process was followed. You need to ensure that there are no liens on the property ( or that you know you can handle extinguishing the liens or dealing with a quiet title). You also need to know if youre bidding on a 1st mortgage, 2nd mortgage, HOA, etc. Once i confirm those items, Ill add it to my preliminary list.

Typically you dont know anything about the property condition other than what you can see on the outside. I personally never bid on something until I've driven by in the past 7 days. Theres been multiple properties that I've seen where the recent Google Map view was fine but the property was burned down or had a murder on it. You can sometimes luck out and see historical interior pictures online from the previous time they sold but beware that there very well could have been a kitchen fire, pipe burst, etc, occur since the photos were taken. I typically assume a gut reno when I run my numbers lol.

As for buying terms its up to the state / county but typically in my area its you have to have 5% in cash/cashiers check at auction and then wire the rest within 30 days. You can't just call up a mortage lender - you need to have cash or creative financing. Youll get a foreclosure/sheriffs deed, not a general warranty deed and the property is as-is and is not guaranteed to be vacant. So assume youll have to go through an ejection lawsuit as well.

TDLR - Super time intensive and risky but there are diamonds in the rough for sure you just gotta do your due diligence to protect yourself from the property becoming a ( and I cannot stress this enough) huge liability. But not impossible to find a good deal.

Foreclosure Auctions - worth it?

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