Trustee, or auction, sales are a great way to purchase an investment property at a discount. You get the thrill of the auction, everyone working hard to outbid the last person and the thrill of winning once your bid is called as the winner. However, before you go out to auction and start making bids on the property, take some time to go through this to do list to make sure your investment is safe.
Due Diligence
We’ve said it once and we will say it as many times that is needed, but due diligence should always be the very first thing you as an investor should be doing before you buy any property, not just a trustee sale. Some of the due diligence you may look into is getting a title review of the property to make sure there are no hidden liens or encumbrances. Typically, the trustee and the lender should have done this themselves, but it is up to you to verify.
In addition to a title review, if you are able to take some time to check out the property. Because it is in the trustee process you might not have access to view the interior of the property but getting a quick look can help you to determine how much work the property may need. Do this with a contractor so they can provide you a suggested budget for all the fix-ups, and to help you determine how much you are willing to spend on the bid of the property and the rehab of the property.
Look at the Surrounding Neighborhood
This falls into due diligence but is important enough to differentiate. By looking at the neighborhood of the property you can get an idea of the price trends of the homes, what a current value of the property is as well as an after-repair value of the property. This can also give you an idea of what other issues you may need to consider such as if the surrounding homes could detriment the value of the property or not.
Take time to look at open houses, other foreclosed properties in the area, or even check out online to see what kind of activity occurs in the neighborhood to help you decide if this will be a worthy investment.
Get Financing in Order
Many private money lenders want to see the purchase contract before they begin underwriting a loan, but if you have a good relationship with a lender, they may be willing to write a quote for you that is based around how high you are willing to bid, and contingent on receiving the winning receipt. This, of course, means that if you win the trustee sale at a lower amount that the percentage of the loan to purchase price will be used to make sure the loan is within that lender’s constraints. For example, if you provide a purchase price of $100,000 and the lender quotes $80,000 then that is an 80% loan to purchase. Now, if you end up buying at $90,000 then your loan amount will be $72,000, or 80% of the loan.
You will also want to make sure that if you plan to add square feet that you get a quote for the cost and possibly consider having that included as draws by your lender.
With all of these in mind, you will be able to navigate the auction sale even better, and you can know that Capital Fund 1 has your back with fast 24-hour financing once you win.