So you think you can flip real estate?
You’re probably reading this because you heard about housing auctions and thought “The bank is auctioning off distressed properties at low prices everyday? And you only have to bring 5 to 10k in hand? Wow sign me up I’m going to purchase a nice beat up little ranch tomorrow and get to flippin’!”
Well slow down there tiger, let me tell you what you’re getting into.
Going to housing auctions is an adrenaline pumping thrill ride that makes those scripted-drama shows like “Storage Wars” or “Pawn Stars” look like a merry-go-round. With huge profits on the line, the competition between bidding parties is very real and rivalries occur quickly. Since sure-fire deals are rare, bidding can get intense when bidders know there is money to be made. Even if one bidding party is bidding confidently it can drive others into a frenzy.
Its an incredibly mental game and the only way to be successful is to cultivate a “thick skin” mentality and go to as many housing auctions as possible.
Boom! You’ve won your first auction, now you’re sitting pretty ready to make a killing on this rehab right? Well not quite. The thrills don’t end at the bidding, you’ve got plenty of obstacles to tangle with now. The bank and their bureaucratic process will obviously cause you problems but you have a bigger problem on your hands. Oops, you didn’t realize there is still a tenant in the house. Worse yet, they don’t wan’t to leave.
Most people think “how could this happen? legally they have no right to be there? I just purchased the house? they’re trespassing right?”
Well its a bit more complicated than that and it happens more often than you think.
The very first auction I went to we happened to win and the gentlemen refused to leave, subsequently chasing us off his property shouting threats and obscenities.
A lot of times this can end up costing you some extra money to remediate.
Okay so now you might be thinking “hmm maybe there’s a bit more to this than I thought. I don’t like the unknowns. Forget housing auctions I’ll stick to trolling craigslist.”
Well you’re not finished yet, housing auctions can be VERY profitable and rewarding if you’re willing to work for it and prepare.
So what do you need to know?
Well, let me first say, it is paramount that you do your due diligence prior to attending any auction. The last thing you want to do is to get caught up in the emotion of bidding and pay too much for a property.
Now you’re probably thinking “what kind of action should I be taking?”
Well, before you attend any foreclosure or housing auctions make sure you have the required fee to register for the auction so you are able to bid. Usually the majority of auction companies require a bank check in the amount of 5K, some require 1OK so just make sure you know the amount.
I call or check the websites the day of the auction to see if it is still “on time and active.” It is not uncommon for housing auctions to be canceled the day of the auction, or even 10 minutes prior to it actually going to start.
Go to the property prior to the auction time. I like to go a day before or a few hours before it is going to kick off. Getting there that early, allows you time to evaluate the property (rehab cost) without other competitive buyers around. It also allows you to see if the property is vacant or occupied. This is a big deal regarding your top number when you bid.
I also call the town Tax collector and inquire about any/all back taxes on the property. (RE taxes, water/sewer outstanding bills, etc.)
Also, research whether or not the house has a septic. Call the B.O.H. to determine the year of install and/or any title V pass certs (this will determine your numbers if you need to account for septic install).
Research the property to determine the After Repair Value or ARV, you can do this by analyzing comps and determining what needs to be done to the property.
Once you have all your information and money cost, work backwards on what your highest number will be when the auctions opens. Having all your numbers accounted for will allow you to be confident in you bidding and maximum number you are willing to pay for the property.
Doing your “due diligence” will adequately arm you with the ammunition you need to be successful, prior to any bidding war when on the battlefield of the auction world. Best of Luck!