Is a property auction a good investment?

Is a property auction a good investment? Houses and apartments priced well below market prices can have advantages and risks. Read this article and find out if property auctions are a good investment.

The demand for property sales through auctions has increased significantly in Brazil. In 2020 alone, searches for houses and apartments in this modality grew by around 70%. However, before taking the risk, you need to know whether property auctions are a good investment for you.

In this article, we will talk about how it works, what the advantages and risks are and whether buying properties through auction is a good deal. Follow along below.

How a property auction works

At a property auction, instead of negotiating with the seller, you can purchase a property by participating in a collective dispute (as happens in any auction of works of art and other goods).

There are two types of property auctions:

  Judicial: when the property is involved in a legal process. It is a consequence of a legal action that is being carried out, and was removed from the owner by decision of the judge.

  Extrajudicial: can be carried out by financial institutions, banks and individuals. It happens when a person defaults, is unable to pay, and the property is repossessed, as in the case of mortgages.

Auctions can be in person or online and anyone of legal age, whether natural or legal and with free management of their assets, can participate. The exception applies to judges, trustees, executors, guardians and the like.

What are the advantages of buying a property at auction?

Of course, when we talk about a property purchased through auction, the biggest advantage is related to the values, which are generally well below the market. Some properties are available with up to 80% discount.

Another advantage is payment flexibility. Many people think that at auction, payment can only be made in cash. However, depending on the type of auction, payment may be financed by the bank or paid in installments, as determined by the judge.

Risks of buying a property at auction

Before opting to invest in auction properties, it is important to note some points.

Despite having access to property information in the notice, interested parties do not have the possibility of visiting them. They also often do not have access to photos.

Therefore, there is a risk that it may be damaged or in poor condition, and this will require you to invest in a good renovation.

Another problem may be needing to negotiate the exit of the property owner. This negotiation is done by whoever acquires it, so, if the former owner does not want to leave, you will have to take action to evict the resident.

After all, is a property auction a good deal or not?

Well, everything will depend on the person’s financial profile and whether the transaction fits their objectives.

To better understand, you need to put on paper:

•   Possible debts left by the defendant (if they appear in the notice as an expense to be paid by the buyer);
•   5% auctioneer cost;
•   Taxes to pass the property into the owner’s name;
•   Renovations and repairs of faults;
•   IPTU.

Whether to invest or to live, it is important to add up all the costs of this property and compare it with one that is already ready and located in the same region. From there, you will know whether participating in the property auction is a good investment or not.

There are websites to monitor available auctions, such as Leilão Imóvel.

And if you’re still afraid of investing, you really need to take a look at this article.