Buying at Auction or Short sale or REOs? - Posted by Kevin

Real Estate Investing Auctions
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Posted by Charles Parrish on September 07, 2011 at 07:04:15:

You have a system that works, stick with it. We sell many properties at auction all the time. We actively go out in the market and look for sellers who are motivated to sell and give them a proposal. I can either buy it, I mean CONTROL IT, or I can give the seller a proposal to sell it for them at a reserve auction. What you are missing here is the fact that the seller is ready, when they do business with an auction company, they have mentally given that property away.

Stick with what you are doing, but don’t pass up an auction in your area, you really never know what is going on in the minds and life of the seller.

I have 20 auctioneer associate working in the field for me. Their job is to run my leads, create leads, book auctions, or do hybrid deals, sometimes double dip fees and equity and do it over and over again.

I advertise on radio and TV in my area to create a great reserve of leads; houses, commercial deals, water fronts, lots, subdivision and non-conforming properties. For me, marketing for deals is like a big grab bag, I never know who is going to be calling me.

Finding high equity position real estate should be the goal of investors, today at 69 years old, my real estate holdings is large enough, I continue to control real estate and flip, usually within 3 weeks, I have more fun today making quick profits without ownership. My system has worked very well for me and the people who work with our company.

I am in Baltimore but also have a house on a Amelia Island Florida, just outside of Jacksonville.

To answer your PS, you really never know how much you might make per deal at auctions by bidding or by following up on a no sale by tracking down the seller.

Developing a real estate awareness and a system in this business is a great thing, most new investors don’t have a clue and wind up taking every course that comes down the pike.

Have fun, understand what you are doing, do it often, be fair, make all disclosures and try never to hurt anyone in any deal; do this and cash flow will flow in abundance.

Charles

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Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on August 31, 2011 at 12:31:46:

Hi,

Do you get a better or faster deal buying at the auction or from dealing with the bank/re agent on short sale or REOs? I would like to buy one a month or sooner from today. I have some cash available so that allows me to go buy at the auction. My exit strategy is rehab and resell. Total hold time is 3 months hopefully. This will be my first time venturing into real estate investing so I don’t want to make a mistake. For those of you who have experience, what would you suggest? I’m in So. Cal.

Thanks.
Kevin

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Re: Buying at Auction or Short sale or REOs? - Posted by Jackeline

Posted by Jackeline on September 02, 2011 at 12:29:05:

Kevin, I buy REO’s agents and shortsale because in the auction most of the
time the bank buys back the property. I would focus in one of the two to
start and see what works best in your market. Also 3 months for holding
time is to short I will plan for at least 6 months.

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Re: Buying at Auction or Short sale or REOs? - Posted by dell-ohio

Posted by dell-ohio on August 31, 2011 at 21:27:29:

I would concur with a couple of the others, sheriff sale auctions have inherent problems, the inability to gain access legally to see the inside of the property before buying, being a big one.

I buy fix and sell, as well as buy for one other full time rehabber and a couple part-timers. 90% of what I by are reos, I have submitted a couple offers on short sales but have not had any accepted. My realtor does quite a few, most are not priced well enough for us to profit, the other fa ctor is unpredictability of closing dates, they tend to be two to four month according to my realtor.

The REOS, we write all our offers, cash closing in two weeks. I would say 75% of them will take longer, typically 30days. I have had one where the bank was ready to close in seven days. But 30days is pretty standard.

Your three month timeline from start through rehab to getting it sold is a bit unrealistic, even for an experienced rehabber.

My average cycle is just over five month, but sometimes one sits for a month or more until we get started on it.

Our average rehab, actual work time is running about five weeks. The last one was seven, but we have quite a few four week ones, hard to get them done faster, especially if you do new windows, kitchens, baths, furnaces, move walls for better design, etc like we do.

We did one earlier this year that we had a three month cycle, actually 91days, it was a Fannie Mae property and we had to wait until the 91st day to close, deed restrictions, but that is RARE.

The best to you in your venture

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Re: Buying at Auction or Short sale or REOs? - Posted by Chris in FL

Posted by Chris in FL on August 31, 2011 at 16:45:17:

My advice would be, as a first timer, skip the auction plan. You have to do some homework, go to auctions, have a title company check on properties you want to bid on to make sure there are no unexpected liens, etc. It can be much more involved than REOs or short sales that go through an agent. REOs and short sales that are on MLS, by comparison, are more staight forward. You pay cash, and get a deed and title insurance at closing. Less chance of suprises. I am currently buying about 8-10 REOs/short sales a year off of MLS, and find it very easy to do. Plus, you can have any RE agent send listings in your price range to any e-mail address, and see pictures, prices, addresses, size, etc. from any location where you can access e-mail. Very convenient!

Best wishes,
Chris in FL

P.S. - Plus, from talking to people I know that have done auctions, I don’t think the deals there are much better, if any at all.

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Re: Buying at Auction or Short sale or REOs? - Posted by Frank Chin

Posted by Frank Chin on August 31, 2011 at 14:04:08:

Kevin:

I’ve went the auction route in the last real estate crash, bought my own home at one, and an investment condo at another. I gone to about 20 auctions in a year.

But I wouldn’t push my luck and try to buy one a month. I only do it if the deal is right.

There’s different types of auctions. In the absolute auction, the highest bidder wins, and when the gavel comes down, it’s yours, that is you sign a contract with them, and then close in 10 days.

There are auctions where bidding is “under reserve”, and you could be the highest bidder, yet the seller can come back to you later and tell you your bid is rejected. That happened at a few auctions inclduing one where the only the auctioneer, the agent for the bank, me and my wife showed up.

Oh, be careful, unless the sale is marked “free and clear”, you may be responsible for outstanding tax leins. I bought my home free and clear, but my next store neighbor who also bought his house from another bank didn’t know about this, and bought the house with about $50K in tax liens as I recall. The bank I bought it from paid off the $50K in liens the developer accumulated right after the auction.

I used the bank’s title company, otherwise another title company may not let the sale go through till the liens are paid. But I had to keep checking the public records on-line for a while to make sure the liens are finally paid.

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Re: Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on September 02, 2011 at 12:32:38:

Thanks Jackeline.

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Re: Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on September 01, 2011 at 24:52:16:

dell-ohio,
Thank you for your thoughts. Can I ask how much below market are you getting your REO deals accepted at? I’m trying to determine whether I can get a better deal at the trustee auction or REOs. And just to reiterate what you said, it typically takes about 30 days to close on a REO deal from beginning to end? Thanks.

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Chris In Florida - Posted by Bill

Posted by Bill on September 04, 2011 at 17:33:15:

What area in Florida are you working? I am hearing the same is going on in South Florida. Thanks.

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Re: Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on August 31, 2011 at 17:19:52:

Hey Chris,
Are you able to buy below market on short sales or REOs? If so, about how much lower are you buying it? And your right about the auctions. I’ve been following it and the deals aren’t quite there. The only reason I would consider buying at the trustee auction is because I can buy and own the property a lot quicker than buying it from banks which I heard drag their feet on their decision. And I would have title check out the property before moving ahead with it. If you found an REO or short sale that you like, how long does it take for you to acquire that property from the bank? Thanks.

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Re: Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on August 31, 2011 at 17:28:57:

Hi Frank,
I was thinking about buying a property at the trustee sale. I would have title checked out before buying. Thanks for your response.

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Re: Buying at Auction or Short sale or REOs? - Posted by Frank

Posted by Frank on August 31, 2011 at 15:35:30:

Hey Frank so how would you know if the deal is right before you bid into a property? Do you perform research in certain areas you wish to invest and then search for property at the aution in those particular areas? Please clear this up for me, thanks :slight_smile: .

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Re: Buying at Auction or Short sale or REOs? - Posted by dell-ohio

Posted by dell-ohio on September 01, 2011 at 22:40:00:

Yes we always write offers to close in 15days, cash no contingencies unless there is a well and septic, we ask for contingencies on those two items.

About 70% close in 30 days, we had three go between 45-90 days days due to lack of clear title in the last year, and had two close in the last year in 15 days or less.

The amount below market, I hear it tossed around a lot by gurus, but its not a concept any of the rehabbers i know consider.

When you ask that question do yu mean, what do we buy them compared to ARV “after repair value” or do you mean what do we h=get them for compared to what REOs are selling for in the same area?

The key criteria I have to know, is 1.What can I sell it for when its done, #2 What will my expenses be (rehab, closing on buy and sell side, holding costs, cost of money, selling cost). then i subtract what I want to make and that becomes my MAO (Maximum allowable offer. If I can buy the house and I can make my targeted 15k - 20k profit depending on the time required to do the rehab. I do not really care if I am paying over over or under market value, I only care if I can make my targeted profit, % below market value is a non consideration for me. I only want to know if I can make money. Does that make sense.

The following is what the numbers looked like for a house I looked at yesterday and wrote an offer on.

ARV 79k
Rehab 25k
Hold/Close/Sell 12k
COM 2k
Profit 15k
MAO 25k

House was first day on mkt yesterday, listed at 14,900 SWEEET DEAL!

I put a full price cash offer in. Realtor calls back says they have four offers the first day, they want highest best. I increased my offer to 20,200.

So I dont know if I am paying above or below market value, but I know if I get this one, I will make 20k for about four weeks of work with my crew. Does this make sense.

Dell-Ohio

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Re: Chris In Florida - Posted by Chris in FL

Posted by Chris in FL on September 04, 2011 at 21:35:26:

I buy and hold rentals, and I only do one area… Close to home - Lakeland, Florida.

-Chris in FL

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Re: Buying at Auction or Short sale or REOs? - Posted by Chris in FL

Posted by Chris in FL on August 31, 2011 at 19:08:39:

Kevin,

I buy and hold. REO and short sales - I am buying in lower price ranges… Paying $20-30K, including my repairs, for avg. 1000 SF LA houses, that rent for $600-700/month. Average retail market price of comparable houses probably $10-15K higher than what I pay, including my repairs. Probably not enough margin in most of these little houses to do flips - but perfect for rentals.

Average time for an REO is probably about 30 days. Short sales vary from 30-90 days… Go faster if short sale list price is pre-approved by lender, and take longer if not approved yet. Hope that helps.

Best wishes,
Chris in FL

P.S. - I know a few people that are buying REOs and short sales and flipping them, in slightly higher price range, and last I heard they were still doing pretty good in this market.

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Re: Buying at Auction or Short sale or REOs? - Posted by Charles Parrish

Posted by Charles Parrish on September 07, 2011 at 07:21:26:

Most all Trustee Sales are sold and a free and clear title is delivered. If the auction company can not assure a good title, don,t bid on the property.

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Re: Buying at Auction or Short sale or REOs? - Posted by Charles Parrish

Posted by Charles Parrish on September 07, 2011 at 07:24:18:

No need to do all that research. The auctioneer is required to tell the bidders what kind of title they will receive if they a the high bidder. Don’t waste you time checking titles.

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Re: Buying at Auction or Short sale or REOs? - Posted by Frank Chin

Posted by Frank Chin on August 31, 2011 at 17:14:35:

Frank:

I go visit the area, do comps, and actually gone to local agents to see some comparables. For my home for instance, comparables were $300K to $325K at the time, and I set a bid limit for myself for $200K. I went a few thousand over it, at $207K because another pesky bidder try to outbid me, and when he noticed whatever he bid, I add another $1,000.00, he stopped. Auction fees ran 7%.

Also interesting to not that there was another foreclosure two doors down from me, the guy was at the auction I was at, and his RE broker went with him. When the bidding went past $160,000, the broker told this guy to approach the other bank’s REO dept to say that another house 2 doors down was sold for $200K at auction with the bank providing the mortgage, but he’ll make a cash offer of $160K. I closed on my place in Spetember, and this guy took over around December. He decided to sell it right away, and around March I saw “for sale” signs going up, and the realtor told it is being sold for $230K. Someone bought it right away.

And just to complete the story, someboday rang my doorbell around Oct that year (a year after I bought my place) to say that he’s offering $300K for the place, and does it sound right. I told him I bought my house the year before, didn’t mention how or how much I paid for it, but I did the comps, and I told him he did well because older houses were going for $325K.

I said to myself “wow, one wholesaler selling to flipper to a homeowner”. This is 1994 now, and this man bought it as an investment as well, though he moved into it, fixed up the place, had a new kitchen put in, and sold it for $850K in 2006.

Note also that these properties are sold as is, and in some cases, you can’t even get to see the inside to inspect. I gone to a few courthouse step auctions, and most of them still have hostile tenants in place. There was one where the court allowed bidder inspections one day but the tenant said he’ll shoot anyone that tries to go in, and the police was called, so I decided I didn’t want to mess with this guy taking over the place.

And back then, I go down to the local courthouse to check the public records, though most are online now. That would be for liens. I have to visit the buildings dept for violations.

But you still can miss some things. I was looking to do auctions up in western MA, and a relative who took me around mentioned that condemnation orders are not part of the regular public records, unless you know where to look, so one guy bought a house at auction, and several weeks later the city came by, knocked the building down, and hauled the debris away.

I got another friend who bought a river front strip at auctions to build condos, paid $200,000 cash for the land to the town, and then found out the land was already sold by the town to the state. The town admitted they goofed. He actually had someone check the public records for him to be sure, but when this happened he was told transactions between the town and the state is kept in ANOTHER book, and whoever came by the check didn’t ask the right question, so he was not told. My friend got his money back, but it took over two years.

The town told my friend that the town already had plans for the $200,000 when the sale was made, and already spent it. His attorney told him he can sue and get a judgment, but he can’t just go and garnish the town. He was told they’ll appropriate the funds in the next fiscal year, and he’ll have to wait.

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Re: Buying at Auction or Short sale or REOs? - Posted by Lubasha

Posted by Lubasha on September 07, 2011 at 21:43:26:

Dell-Ohio,

How do you know your ARV? I like your math but mine is tougher due to deceptive ARV expectations. And how long it takes for you to sell the property? Do you work on one by one rehab schedule or you are working with more than one property in the same time?

I am working with property #4 right now but so far away from kissing my job good-bye, so I am trying to perfect my technics and your experience sounds very interesting to me.

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Re: Buying at Auction or Short sale or REOs? - Posted by Kevin

Posted by Kevin on September 01, 2011 at 22:56:30:

Hi Dell-Ohio,
I meant what you get for compared to reos. But your explanation
made it very clear for me to understand. Thank you very much and
I hope your offer gets accepted. :wink:
Kevin