Purchasing any home can be a nerve-wracking experience. After all, these are some of the biggest purchases anyone makes during their lifetime. And while purchasing an investment property is very exciting as it can lead to a new source of passive income that will help you meet short- and long-term financial goals, it can still be stress-inducing.

One of the big advantages of purchasing an investment property at auction is that you can snag most properties well under market value, which will help you achieve profitability from the investment much faster. However, it comes with some major risks, and if you aren’t careful, you may end up with a money pit rather than a sound investment.

The following tips can help you prepare to purchase an investment property and boost your odds of successfully turning it into a source of revenue.

  1. Spend more time on research. The importance of researching any real estate property sold at auction cannot be understated. These homes are sold without any opportunity to view them upfront. Additionally, they are sold as-is, without any opportunities to back out of the deal. Once the gavel comes down, the home is yours at the price you bid – whether it’s worth that much or not. Therefore, you want to know as much as possible about a specific property before bidding. To learn about the property, you can:
    • Look at comparable sales in the neighborhood to determine what they are selling for, which gives you a range you can expect the home to be valued at, provided it is in comparable condition.
    • Research the history of the home and any other data or photos you can find online to determine if it has been on the market or left unsold at previous auctions. If nobody has indicated an interest in purchasing it in the past – especially if it’s been auctioned previously – it’s fair to assume something is wrong with it. You can also find a ton of data on most homes about any liens or other liabilities that may come with the property.
    • Check to see if any walk-throughs are allowed. While they generally aren’t, sometimes it’s permitted. If it is, you will want to visit the home to get a feel for the condition of the interior. If this is not permitted, it’s worth visiting the general location of the property to understand the neighborhood, which is often one of the biggest determinants of a home’s value.
  2. Get your funding in place. Real estate property auctions generally accept cash or a cashier’s check, which you will want to have before attending the auction. During this process, you will want to determine the maximum amount you can spend to achieve the type of profitability you want from the investment.
  3. Determine your bidding strategy. Any investment property owner who acquires properties at auction will tell you it is an art. There are certain benefits to different strategies. You can bid early to get a feel for others looking at the same real estate property; you can wait until the reserve is met to start bidding, or you can overbid others by large amounts to weed out the competition. These strategies may or may not work in different settings, but it’s a good idea to develop a plan before bidding begins to help you stay clear-headed.
  4. See if the seller will accept pre-auction offers. Auctions are just as much a gamble for sellers as for buyers. And some sellers would prefer to have a firm offer and avoid the real estate auction process entirely. While it’s not always a successful strategy, it can be worth asking the seller whether they are entertaining pre-auction offers. If they are, you may be able to put in a decent offer up-front. If accepted, you don’t have to deal with any competition at an auction – and the seller gets to move the property quicker than anticipated. These scenarios can be a win-win for all parties.
  5. Stay calm. Purchasing real estate is a major transaction with a lot of money on the line. Moreover, if it’s a home you want, it’s easy to get caught up in the excitement and bid over the maximum you had previously set. Unfortunately, this is a great way to turn good intentions into bad investments. If you find yourself getting lost in the mania during the bidding process, it’s worth reminding yourself of your end goal – it’s not to secure any particular home; it’s to make a sound investment that pays off in the long run.

Purchasing investment properties at auction can be incredibly lucrative, but it takes a lot of time and effort to ensure you’re making the right moves. For more information about securing a great investment property at auction or through a local real estate agent, browse shomemoreauctions.com or shomemorerealestate.com.