Buying properties with large profit margins is certainly good.
Some downsides to buying at the auction:
- May have to evict an occupant
- May have other liens to clear up
- You may be buying a second mortgage
- Limited ability to inspect before purchase
- Some states have redemption rights
- You must pay cash on the spot
All that said, if you can find the right deal, and you have the cash, it could be a way to get a good deal.
Buying properties with large profit margins is certainly good.
Some downsides to buying at the auction:
- May have to evict an occupant
- May have other liens to clear up
- You may be buying a second mortgage
- Limited ability to inspect before purchase
- Some states have redemption rights
- You must pay cash on the spot
All that said, if you can find the right deal, and you have the cash, it could be a way to get a good deal.
Jon hit many of the concerns that exist. I've been buying this way in TX for 18 months. You definitely can find good deals if;
1. You don't miss any liens that you'll be responsible for.
2. You are willing to hold for awhile due to market not being a sellers' market.
3.You have extra cash to do ANY AND ALL repairs you encounter that you weren't aware of(no inspection possible if property is occupied) Rich.
Check with the Trustee before doing a lot of due diligence. A good percentage of trustee sales don't happen because the owner finds a way to delay or cancel the sale.
Many of the recent (2004/5/6/7) trust deeds were high LTV loans to begin with, so the starting bid price will already be too high.
Doing your own title search at the clerk's office is a must.
You don't always have to evict. Sometimes they have already walked away. If it is already vacant, you might also check with the local housing authority/code enforcement people to make sure it hasn't had the occupancy permit yanked or been condemned. Check any an all notices posted on the door!
Recognize the difference between a sheriff's sale and a trustee sale.
Here in VA, the practice is to bring 10% of final price or a stated amount to the auction, with closing within 14 days. Again, know your local laws and practices.
I agree with Ralph on the point about many deals being pulled prior to sale. The problem with TX is the entire process from notice to sale is TWENTY ONE days!! I've already done the work and research before the property is ever pulled. Short fuse.
I have been to a few of these Court House steps sales. .
One where a women purchases a 2nd mortgage. After the sale I asked her why she purchased the 2nd on the property and the way she looked at me I could tell she had not known she was purchasing the 2nd mortgage. They do not list if it is a first position loan up for sale.
One other point is . . at lease it appeared to me that here was someone present (from the bank) making sure the sale met there low dollar amount or they bought it back. You still can make money at the right price but if there is someone there to keep the starting point high then your profit margin has just been adjusted.
If you are in pre-foreclosure contact with the defaulted borrower (where that is legal to do), you may find that offering them suggestions to "help save the house" and "avoid the auction" can get you inside the property to do an inspection.
I was at a training event this past weekend, trainer was a PA licensed real estate attorney, and he told how he has a client who is an exterminator by profession. This exterminator buys at sheriff sale auction (that's the lingo in PA). He gains entry into the property by explaining to the property occupants that he has been called to this neighborhood to handle exterminations, and is willing to give their house a FREE treatment in exchange for placement of his sign on the premises. Trainer said it never fails, and as an exterminator you have to get into all parts of the property, so inspections can be thoroughly done by him. Another attendee commented that he probably only had water in the can rather than chemicals (a little humor helps in these training events).
But it is possible - you just have to be a little creative. And I personally have been inside before auction using the "save your house" approach. But I have also been told by others of their failed attempts to see the inside first, so YMMV.
Thanks for the idea, I have a friend who is an exterminator, maybe I can be his assistant. My current last resort is the offer of picture of a dead president on a slip of paper, never fails.
If you know what you are doing, its an amazing way to pick up property. Our biggest investors pick up 2-3 per week this way. They drive each property they are interested in, pull public records, make sure they arent just buying a 2nd, etc etc. There is alot of due diligence to do in a short time (sometimes the bid list isnt released until 2 days before sale, etc), but if you have the cash and want to do the legwork and take the risk, its a great source of good properties. We have been approached right after the sale to wholesale the property from somebody who didnt register to bid.or didnt win the bid. Quick $5-10k made right there and then.