2 Tests Before Buying at Auction

By on July 10, 2015

When I preview houses prior to mortgage foreclosure sales or any type of auction there are two critical key things that I do.

There is no substitute for experience and I have done this thousands of times.

  • First, I determine if this is the type of house I will buy and hold as a rental, or rehab and sell to an investor.
  • Second, once I decide that it is a buy-rehab-flip, I make a determination of what I can rent the house for. Then, I determine the price I can sell it for.
  • All of this has to be accomplished in two to five minutes as there are hundreds of houses I preview within five to seven days in advance of the auction.

By determining what I can sell it for and by calculating the rehab, it’s then a simple decision to determine how much I can afford to pay for this particular house.  When you buy houses in subdivisions, it’s easy to determine values by looking up comparable sales in that neighborhood.

Sometimes, especially in prior foreclosure neighborhoods, there might not be enough current sales and sometimes there are none at all.  In metro Atlanta, values have risen dramatically as hedge funds have driven up prices due to their appetite to hold on to long-term rentals.

Experience and common sense play an important role at auction

The cost to build houses of similar quality within an area is one of the common denominators I use to determine particular values at a given moment in time.  Knowing what it costs to build is particularly helpful, but it is not the “end all” to determine value.

The setting of the house can impact sales value tremendously as some houses could be very close together while others are on cul-de-sacs which back up to trees and offer privacy.  It’s these distinctions that I look at prior to determining my bid.  I avoid houses that have steep sloped driveways and I prefer level yards in the front and in the rear.

I always ask myself upon looking at a house, “Who will pay more money for this house than me and why?”

You can get a lot of information just by driving through neighborhoods and looking at how people maintain their landscaping and home exteriors. We avoid neighborhoods that have a lot of neglect, are lower income, and/or not situated in a good area.  These areas are slower to rise in value and typically require intensive management and maintenance.

A portfolio of these types of houses is more like a job than a real estate investment and you must count the cost in terms of time and aggravation prior to bid in these types of areas.

Research pays off at auction time

If you don’t know how to calculate a rehab, then you better get someone on your…

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