Property auctions: How can an entrepreneur profit from them?

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property auctionsOne of the current property trends in Malaysia has been to buy old properties and refurbish them into great looking homes/apartments for potential buyers. Examples of this can be seen in the various home improvement shows on cable TV where a set of people take an old home or dilapidated apartment and completely refurbish and design it to make it look like new.

This type of property remodeling is ideal since it allows entrepreneurs to buy old properties at low prices and sell them for more than double or triple the amount paid based on the changes that they implemented. The “trick” to getting the best prices for this type of business strategy is to look for an auction property on sites like Property Guru and join the bidding process.

What is an Auction Property? Unlike their direct selling counterparts, this type of property is sold via a bidding process. This is due to their status as a seized property wherein due to the inability of an individual to fulfill the remaining payments of a loan, the property they placed as collateral (or they were making the payments for) is subsequently seized and sold off by the bank in order to make back the remaining amount due.

The advantage of purchasing properties of this nature are their lower prices compared to conventional properties. Since the bank is attempting to make its money back as fast as possible and since the bank has already recouped a certain amount from the payments already made on the loan, they tend to sell auction properties at a lower price compared to their real market values. The purpose of the auction is to help drum up interest in the property as well as increase the amount of money that the bank can get.

Different Types of Auction Properties Available
There are three distinct classifications utilized by banks for auction properties, which are:

a) Green Properties
When banks utilize this classification it is meant to indicate that there are no issues connected with the property. This means that it was properly turned over to the bank by the previous owner due to their inability to fully pay for the loan. Green properties are normally the most “expensive” of the different types of auction properties by the mere fact that there are no issues associated with their turnover. It is due to this status that these properties are often the most sought after by buyers since they can take over ownership of the property with little fuss or difficulty.

b) Yellow Properties
Banks utilize the yellow category to indicate an issue with a property that is not necessarily major but does require additional work on the part of the buyer in order to acquire it. This can come either in the form of the original client contesting the property seizure, the title having a lien on it (a.k.a a debt attached to the title) and other similar issues that can be handled via additional paperwork or even litigation if necessary.

c) Red Properties
These types of properties are often the lowest priced by the bank to such an extent that many potential buyers are surprised that a property would be undersold to such an extent. Unfortunately, this is not generosity on the part of the bank; rather, this is due to numerous issues that are attached to the property. These include, but are not limited to, cases where the original homeowner refuses to leave, the property has issues regarding its ownership, there are additional contesting claims on the title as well as an assortment of other issues that require significant legal intervention in order to be resolved. Due to the sheer amount of issues that the bank does not want to deal with, these properties are at times sold at a loss simply to get rid of them.

Whatever type of auction property you choose, make sure beforehand that it can actually be refurbished within a reasonable level of cost. Issues related to considerable structural damage, water and drainage pipes deteriorated beyond repair and limitations by the building management all need to be considered prior to making any purchase at an auction.

Unfortunately, property auctions operate under an “as-is” policy where you are only allowed to view photos of the property and not visit in person. This limits your ability to examine it based on the details provided by the bank which often do not disclose all possible issues that may arise.

Use your best judgement prior to purchasing the property via examining the age of the property, its overall look in the photos and the extent of usage prior to it being seized.
All in all property auctions are a great way to get a discount on a property that you can refurbish and sell later on in order to make more money. Just be sure to use your best judgement prior to purchasing any property and look at its state rather than just its price.

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