How can you buy a property in auction when you don't have the cash?
In real estate, like other industries, sometimes the vocabulary gets in the way. It is not uncommon for many real estate advertisements to say "cash only". Sometimes, that means what it says, but most of the time it doesn't! Let's look at this a bit more closely.
Basic Home Auction Goals
One of the main goals of an auction is sell the house quickly. Not for the most money, but QUICKLY. It take time to get a mortgage, and the buyer could get turned down for a mortgage, and if that happens, the house will have to get sold again. To prevent this process from happening, some auctions are cash only auctions. The goal would be that sale will be quick, and there will be no mortgage condition that protects the buyers money. This allows for fast transactions - and a quick asset sale.
Borrowing Money For an Auction
If you need to borrow money for an auction, you can still make a cash deal (banks don't usually verify assets, but always check to see if they are, or aren't.). Generally, if you can:
a) Make the deposits required
b) Close quickly
c) Sign the contract without a mortgage contingency
The bank will go ahead and do the deal. You'll need to be very sure that you can get the mortgage when you think you can, otherwise you will lose your deposits.
How Can I get Money Quickly for An Auction Purchase?
Generally, there are lots of ways to borrow money! Here are some.
1) Banks. Banks offer the lowest rates, but can be the slowest, and most careful. They don't lend money to everyone, and don't lend unlimited amounts, and they are very careful about who they lend to.
2) Hard-money Lenders: These are people who can lend money, but are less careful about who they lend to. However, their rates are often the highest.
3) Crowdsourcing: There are new "internet lenders" who use crowdsourcing as a source of hard money. It is hard to know how this will evolve, but right now, they are similar to the internet version of hard-money lenders
4) Friends and Family. Not recommended! But many people get started in business/real estate through this funding source.
Should you Borrow Money For an Auction?
If you are willing to risk loss of your deposits, AND you believe you can close quickly to prove it, AND the bank won't require verification of funds, then sure, go ahead and borrow! It is a very, very risky way to purchase property, but if you have the right connections and a strong stomach, go right ahead.
Other Posts You Might Enjoy
- What is a pre-foreclosure house and how can I buy one?
- What should the humidity in my home be to prevent mold and mildew and other moisture issues?
- How can I reduce the risk of a failed title V and take care of my septic system?
- Landlords in Mass need to know the security deposit law - read here for an overview and stay out of court!
- Can I win my bid war by dropping contingencies, and should I do that?
- Prices and assessments are up! Do you need to file an abatement?
- A summary of some palette collections that you may want to peruse to get your home looking fresh and modern!
About Matt Heisler
Matt Heisler is a real-estate professional and owner of this website. He has been selling homes in MA for buyers and sellers for over 20 years. He is an expert in foreclosure purchases, short-sale purchases, short-sale sales, buy and hold investing, fix and flip investing, and of course traditional residential home sales. He is happy to take questions as they pertain to real estate on Title V, Radon, Termites, Sump Pumps, Roofs, Foundations, Wells, Septic Systems, Cash-Flow, Staging, and a host of other housing issues. As a Vanderbilt University alumnus, he is proud to serve his local community.
*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.