Bankruptcy. The word itself is daunting, symbolizing the worst fears of businesses and individuals alike, but to a rapidly growing population, bankruptcy means a great deal. By purchasing assets from bankruptcy auctions, savvy buyers—from young, hardcore investors to retired vacationers looking for a timeshare—have saved millions off of retail prices in the last year.
Where do the assets come from? When an individual or company files bankruptcy, the debtors are held to a certain list of exemptions, or assets that they are allowed to keep. A trustee is appointed in the case to determine if there are any assets to liquidate for the benefit of the creditors, sells the assets and distributes the proceeds according to the laws of the particular region. Sales are court ordered, and most are sold “as is, where is,” meaning that there are no warranties or guarantees attached to the sale. Bankruptcy assets are not foreclosures or repossessions.
As a buyer, bankruptcy sales are a relatively low-risk, high reward investment. Many assets sell for an average 20% of the original value. For highly depreciating assets, it’s possible and common to see extremely low sale prices. The drawback is that the buyer is, “on his own,” to perform due diligence (determine everything possible about the asset). Often the information available from the estate is limited. It is often beneficial to follow bankruptcy auctioneers like bkassets.com, as auctioneers have usually examined an asset in depth before the court orders a sale.
Whether it’s vacant land to start a ranch in Texas, a diamond tennis bracelet, investing in judgments or stock, a timeshare, ATV’s, a first family home, or even something more bizarre like an alligator farm, bankruptcy auctions are the route to go for the deal of a lifetime.
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Very informative overview. Great place to buy land and judgements. I’ve joined the frequent buyers list and am looking to invest!
I would like to add a little information based on personal experience. I purchased a home that was in bankruptcy under a 203k loan. The 203k loan is a specialized loan that allows buyers to purchase property and roll in the cost of renovation on the property. In doing this, I probably spent at least 1/3 less for my property as my neighbors during the height of the real estate market. However, the 203k loan has an additional fee at closing, which caused my closing costs to jump an additional 3k (unplanned separate origination fee for the construction portion of the loan not previously mentioned). After closing, I discovered the prior owner had removed all the copper plumbing and electrical wiring in the house (another unexpected cost taken out of the renovation budget). All in all, buying foreclosure can be a decent deal. I will not be upside down in my area after all of this, make the designer changes I initially wanted at a later time, and can capitalize when the market turns around in a few years. I would recommend, for those who can afford it, to buy a bankruptcy home and ensure you have the cash for renovation instead of rolling it into a loan. Also, it is worth every penny to have a complete inspection prior to committing to buy. I love my house. I’m very glad I’m here. But, as they say, hindsight is 20/20.
Great additions Jan, I’m glad your purchase worked out and you love your home!
We absolutely recommend all buyers do their due diligence prior to bidding on our auctions. We include as much information about the asset as we are able to gather to get you started. But it’s always a good idea to research your investment prior to bidding or purchasing.
I hope you check out some of our auctions, we’ve got some great deals in this down market!