Going to an auction can be a fun activity, and a land auction can be an exciting way to get a new piece of real estate for your investment portfolio. However, like many other investment strategies, land auctions have their benefits and their drawbacks, and you have to balance these against each other to decide if you want to participate in a land auction.
Here are some of the pros and cons of investing in a land auction.
Pro: You can get land cheap if you have cash
Many times, a land auction is a place where you can find land for an affordable price. While this is sometimes because the land simply isn't worth much, in other cases it can be because the land is selling below market value. As you can imagine, buying land below market value can be a great way to get more for your money; the caveat is that you typically have to have the cash on hand, rather than using a loan or mortgage.
Con: Getting carried away is easy
Emotions can run high at an auction, and a competitive feeling can develop if someone else is bidding for the same piece of property you wanted to buy. You have to be able to set goals, look at the situation clearly, and not get carried away because a bidding war can drive the price of the land up until you're not getting a good deal anymore.
Pro: You own the property outright
Since land auctions often require you to use cash, you'll end up owning your land outright after the auction. This means that you won't have to make payments on an interest-bearing mortgage for thirty years. As you can imagine, this is another way that buying land at an auction can save a lot of money.
Con: Vetting the property in advance can be trickier
In most cases, you'll want to hunt down all the details of a property before buying. Doing the research and due diligence in advance can be more difficult with an auction, partly because you have a deadline: the auction date. You can probably manage basic due diligence before the auction, especially if you hear about the auction well in advance, but (especially if you're interested in multiple properties) it may be unfeasible to check all of the details that could be important later.
These pros and cons can give you the basic rundown of whether or not going to land auctions is for you. If you're still unsure, you can try going to an auction or two without bringing any money just to observe and see how the auction goes and what sorts of properties are typically available before deciding if you want to buy land at this type of auction.