Great Deals—and Big Risks
Auctions can offer excellent opportunities to purchase self-storage facilities at prices well below their real worth. Some investors have landed properties for about half of what they would normally cost. But these transactions also come with considerable risk. If you're planning to bid at an auction, it's essential to prepare thoroughly and understand the potential pitfalls.
Typical Auction Steps
While individual auction houses and sellers may adjust certain details, the process is fairly consistent. A seller hires an auctioneer and sets a sale date. The auctioneer advertises the property and compiles relevant documents, which can include financial statements and, in certain cases, external reports on factors like environmental concerns. Prospective buyers do their research ahead of time. Then, on auction day, bids are submitted—sometimes publicly, sometimes without everyone knowing each other's offer. Once a top bidder is identified, that person places a deposit (often 10%), with a set period—commonly 30 days—to pay the remainder. If the buyer can't secure the funds, the seller keeps the deposit and typically puts the property back on the market.
What Actually Happens
In practice, the real-world scenario isn't so neat. Many buyers are hesitant to invest in due diligence if they might not end up winning. As a result, a property could see fewer serious bidders, leading to lower closing prices. Information supplied by the seller might also be incomplete—especially if it's a foreclosure with limited records. It's not unusual for a seller to reject the top bid simply because it's lower than they'd hoped. This dynamic can be unpredictable and sometimes frustrating for everyone involved.
Key Precautions
Never place a bid unless you've taken the time to research both the property's condition and the financials. There are numerous examples of individuals who assumed a low bid signified a bargain, only to learn afterward that they had made a costly error. For instance, someone might overlook major repairs or fail to account for operating costs, discovering later that the true value is far less than what they paid. Another frequent issue occurs if you can't finalize financing within the short timeframe, resulting in a lost deposit. Bank loans often require more than 30 days, so you should be ready to pay in cash if necessary.
Why Auctions Can Be Appealing
One reason auctions may present such favorable prices is that the format itself deters many potential buyers, making it easier for a well-prepared bidder to face less competition. Banks and other sellers sometimes prefer this approach because it allows them to liquidate quickly, even though it often means accepting a reduced sum. Aside from the possibility of a low price, however, auctions can become time-intensive and put the winning bidder under considerable stress.
Final Perspective
Many investors have a love-hate relationship with auctions. The chance of purchasing a property at a major discount is certainly alluring, yet the risks can be significant. For anyone thinking about bidding, the advice is simple: do your homework, make sure you have your finances lined up, and tread carefully. If done correctly, an auction can be a path to an excellent deal—just be certain you're fully informed before raising your hand to bid.