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Buying a property at auction can be highly risky but also highly profitable. This is why the idea of a trustee sale is so attractive. I have heard many success stories when buying at a trustee sale, but those buyers also say that the hardest part of the process is doing your due diligence.
What that means is researching the property before the sale as much as possible. To begin, figure out what is the fair market value, the debt on the property, and what the repair costs might be. Also, in most cases you cannot inspect the property before auction; therefore you truly might not know the current condition of the property. It is important to find out who lives at the property and if it is a homeowner or a tenant. It is a good idea to steer clear of rental units because you may end up inheriting a lease that is unprofitable. Consider that, if the lease was profitable, the property would not be in foreclosure, right? The above are some of the factors that will help determine if the property will provide a profit or a loss on the inevitable sale
Now that we have identified the major concerns when buying at trustee sale, let’s discuss how to overcome the major issue which is a basic inspection of the property before the sale. By viewing the property from the street, you can do a basic inspection of how the property has been maintained outside. While it does not give a clear indicator of the condition inside, it will provide a fairly good idea of the situation inside the house. However, you will need to build in a risk premium into your purchase price. The general rule of thumb is that one should pay at least 15 to 20 percent below market value. This creates a cushion for the unexpected you might find inside the home.
Luckily for our clients interested in the trustee sale, Foreclosure Abstracts provides a majority of this information for free. While there is risk involved that any investor can’t avoid, we do put our clients well ahead of the high risk, high reward game.
