How To Get Free Real Estate (Or Close To It)

Summary:

Acquiring ‘free’ real estate is possible through government surplus properties and auctions. Government programs offer surplus properties for public use, sometimes free. Auctions due to non-payment of mortgages or taxes can lead to low-cost real estate. Down payment assistance programs also help reduce home-buying costs.

Many people dream of getting real estate for free, hoping to bypass the financial hurdles that typically come with buying property. They question whether it’s actually possible to own a home without spending a fortune. While truly free real estate is a myth, there are some rare opportunities to acquire property at minimal or no upfront cost.

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Is it possible to get real estate for free?

It is possible to acquire real estate at no cost through government surplus programs for public use or at significantly reduced prices through certain auctions when properties fail to attract higher bids. However, such opportunities are rare, and the term “free” often entails other costs like maintenance, renovation, or legal fees.

Julie Hall, Team Leader of The Julie Hall Group shares some thoughts on acquiring real estate ‘for free’:

I should start by saying that “acquiring real estate for free” is usually a clickbait term used by gurus seeking to sell online courses. That being said, the most common method to acquire real estate with little to no money down is owner financing.

Owner financing

The following is a brief description of the owner financing method along with its advantages and disadvantages.

Owner financing (aka Land Contract) In this scenario, the current homeowner assumes the role of financier and “sells” the property to a buyer through payments made directly to the seller. Both parties agree to a down payment, monthly payment, interest rate, and date the balloon payment is due, usually 5-10 years.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider when opting for owner financing.

Government surplus real estate

Federal properties no longer in use by the government can become available to the public. State and local governments, as well as non-profits, can access these properties. They are suitable for community centers, schools, parks, and other communal facilities. Agencies may acquire these properties at a significant discount or even for free.

The application process

The relevant regional office will notify state and local authorities about available properties. Notices are also publicly displayed. Interested agencies have 30 days to express their interest and must submit a formal application, indicating the intended use and the applicable legislation that allows for the acquisition.

How to apply for Government Surplus Real Estate

Applying for government surplus real estate can lead to acquiring property for public use at a significant discount or even for free. Follow these steps to file your application:

Identify available surplus real estate through the Office of Real Property Disposition Resource Center.
Wait for notifications about property availability from the General Services Administration (GSA) to your state or local agencies.
Respond within 30 days of the notification date to express interest. Your response should reference the applicable legislation and indicate the time needed to prepare a full application.
Prepare a formal application, detailing the intended public use of the property and comply with the stated requirements.
Submit the application to the GSA’s regional Office of Real Property Disposition.
The application will be reviewed, and if approved, the property will be transferred to your agency or organization.

Pro Tip

“Government programs and incentives play a crucial role by providing grants, tax credits, or subsidized loans for housing development, particularly in underdeveloped or revitalized areas. For instance, the HUD’s Good Neighbor Next Door program offers significant discounts on homes to law enforcement officers, teachers, and firefighters in revitalization areas. These initiatives help reduce the financial barrier to real estate ownership and promote community development.” – Noah Guthart, the Founder and COO of Panacrypto.

Leveraging down payment assistance programs

Zillow, among others, offers down payment assistance to qualified homebuyers. In a pilot program in Arizona, they provide grants worth 2% of the purchase price to homebuyers. This can significantly reduce the down payment required, making homeownership more accessible to those with limited savings. Although this isn’t “free real estate” in some cases per se, it’s about as close as one can get in most cases.

Program	Provider	Eligibility	Down Payment	Additional Info
Zillow 1% Down Payment	Zillow	First-time buyers; income below 80% median; FICO score ≥ 620	1% down, Zillow pays an additional 2%	Available only in Arizona; includes an educational course; must occupy the property
VA Loan	Department of Veterans Affairs	Veterans, current servicemembers, surviving spouses	Low to zero down payment	Streamlined refinance options; no mortgage insurance but upfront fee required
USDA Loan	U.S. Department of Agriculture	Low- and moderate-income borrowers in rural areas	Zero down payment	Cheaper than FHA loans; requires an upfront fee and ongoing mortgage insurance premiums
State and Local Programs	Various state and local agencies	Typically low- and moderate-income first-time buyers	Varies	May include down payment assistance or subsidized loans; specific eligibility varies by program
FHA Loan	Federal Housing Administration	Lower credit scores are acceptable	Low down payment	Designed for lower-income borrowers; includes mortgage insurance
HomeReady	Fannie Mae	Low to moderate-income borrowers	Low down payment	Flexible funding sources; mortgage insurance required
Home Possible	Freddie Mac	Low-income buyers or those buying in high-cost or underserved communities	Low down payment	Mortgage insurance required; flexible terms for down payments

Auctions and tax sales for buying real estate

Auctions and tax sales present unique opportunities to acquire real estate potentially below market value, and sometimes, depending on the situation, you might end up getting what feels like “free real estate.” Here’s a breakdown of how these sales work and how they can lead to significantly discounted property purchases.

Auctions due to non-payment of mortgage or taxes

When a property owner fails to pay their mortgage or property taxes, the property can be seized and sold at auction. This process helps lenders and government entities recover unpaid debts. The starting prices at these auctions can sometimes be low to encourage bidding, leading to potential bargains.

Absolute auction

In an absolute auction, the property is sold to the highest bidder, regardless of the price. While not literally free, properties at absolute auctions can sometimes be acquired for significantly lower prices if there is limited interest and bidding remains low. There’s no reserve price, so the property will sell on the auction day, potentially at a bargain.

Minimum bid auction:

This auction sets a minimum bidding threshold that must be met for the sale to proceed. The minimum bid usually covers the outstanding mortgage or taxes owed. Prices can still be below market value, but the minimum bid ensures that the seller gets at least a base amount.

Reserve auction:

In this type of auction, even if you are the highest bidder, your bid can be rejected if it does not meet the reserve price set by the seller. The likelihood of getting a property for a significantly reduced price is lower in reserve auctions since the seller has more control over the final accepted price. However, if the reserve is set realistically in line with market conditions, there might still be a chance for a good deal.

Incentives, such as tax breaks or grants, can also make it easier for individuals to invest in real estate without spending large amounts of money upfront. These incentives may be targeted toward specific areas or types of properties, making them attractive opportunities for investors looking to acquire free or low-cost real estate. – Alex Locklear, Founder of NC Cash Homebuyers

Strategies for buyers at auctions hoping to get free real estate

While securing real estate for ‘free’ is not literal, savvy buyers can acquire properties at significantly lower prices through auctions. Here are key strategies:

Research: Thoroughly investigate the properties and familiarize yourself with the auction rules. Check for any liens, or encumbrances, and understand the property’s actual condition.
Inspections: Inspect the property if possible. Many auctioned properties are sold as-is, and unseen damages can incur heavy repair costs.
Budgeting: Define your budget, factoring in potential renovations and the real market value to avoid overspending.
Financing: Arrange your finances beforehand. Auctions often require quick payment or a substantial non-refundable deposit immediately after winning.

Case Study 1: Government Surplus Property

Background: Jane Doe applied for a surplus property under a government program intended for community use. She acquired an old fire station with the idea of converting it into a community arts center.
Hidden Costs:
- Renovation Costs: The building required extensive renovations to meet safety codes and functionality as an arts center, costing Jane approximately $50,000.
- Legal and Compliance Costs: Legal fees for transferring the property and ensuring compliance with zoning laws added another $5,000.
- Ongoing Maintenance: Monthly maintenance costs for the aging building were roughly $500 more than anticipated.

Case Study 2: Auction Purchase

Background: John Smith purchased a home at an auction for a price significantly below market value due to non-payment of taxes by the previous owner.
Hidden Costs:
- Back Taxes and Liens: John was responsible for $10,000 in outstanding property taxes.
- Repairs: The property required urgent roof repairs and mold remediation, totaling an additional $15,000.
- Insurance Premiums: High-risk area led to higher homeowners insurance rates, increasing monthly costs.

These examples show that while properties might be acquired without a high initial purchase price, the total cost of ownership can add up, challenging the notion of “free” real estate.

FAQ

Can I live in a property obtained through government surplus?

Properties acquired through government surplus are typically intended for public use, such as schools or community centers. However, if an individual meets specific criteria, some programs may allow residential use.

What are the risks associated with buying property at an auction?

Risks include buying a property as-is without a thorough inspection, which might lead to unforeseen repair costs. There’s also the risk of overbidding due to competition or not having a clear title, resulting in additional legal fees.

Are there any tax benefits to buying government surplus real estate?

Tax benefits can vary based on local and federal laws and the intended use of the property. Typically, properties used for non-profit or community purposes may offer tax advantages.

How do I find auctions or government surplus sales in my area?

Check with local government websites, real estate auction sites, and federal agencies such as the General Services Administration (GSA). Subscribing to auction house newsletters and networking with real estate professionals can also provide leads on upcoming sales.

Key Takeaways

Government surplus property offers a path to acquire real estate for public use, potentially at no cost.
Application for surplus property requires notifying the General Services Administration within 30 days of interest.
Down payment assistance programs like Zillow’s can significantly reduce initial home-buying costs.
Auctions offer a chance to purchase properties below market value, with absolute auctions sometimes resulting in the lowest prices.

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