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.