Real Estate Day Trading at the Courthouse Steps
His face was wrinkled. Not from old age, but from the sun. I was certain his raspy voice came from years of cigarette smoking.
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
The man standing at the front of the room was a real estate instructor. The class he was about to teach was called Foreclosures and Short Sales 101. There were about 30 Realtors in the room and they were all there to earn 8 license renewal hours. But that’s not why I showed up. I could care less about the continuing education credits. I was new to the real estate investing business and was hoping to meet someone there that could help me get started.
As the class got underway this prickly professor boldly proclaimed that “buying houses at the courthouse steps is the rawest form of capitalism there is!”
That was about 8 years ago. I still replay those words in my mind just about every time I go to bid on an auction property here in Arizona. The scene that plays out every day on the courthouse steps resembles the floor of the New York Stock Exchange, minus the business suits and ticker screens.
I’ve never been to an auction in any place else but Maricopa County, Arizona. I have no idea how they work in other real estate markets. Here they’re formally known as trustee’s sales. And each day, either at the courthouse steps or in various law offices around the city, hundreds of homes are auctioned off to the highest bidder.
For June 9th, 2011 – 191 opening bids have been set by the foreclosing lender.
Some of these sales will be cancelled at the last minute. Others will be postponed. About 30% of the houses that get sold today will end up in the hands of third party buyers. Their exit strategies will vary – fix and flip, buy and hold. Many buyers at the auction have no exit strategy at all – they intend to live in the house they purchase, either as a primary residence or second home.
The 70% that aren’t sold to a third party go back to the bank.
It’s not uncommon to have 10 people or more bidding on the same house. On a busy day there will be 2-3 auctions taking place on the courthouse steps simultaneously – all within just a few feet of each other. Each sale is announced by TS (trustee’s sale) number, not by address.
It’s a high stakes game.
If you win a bid the auctioneer will immediately want a $10,000 cashier’s check made out the trustee. The rest of the cash is due by 5pm the next business day. And did I mention that without a title report there is no way to know if you’re bidding on a first position deed of trust, second or a third?
Things may be different in your market. Maybe there are fewer auctions and not as much competition. That doesn’t make it any less risky. If you want to buy a property at the auction I recommend you observe a few first. Get to know the regulars. Ask questions. Familiarize yourself with the legal process in your state. You may even consider paying someone with experience to bid on your behalf.
The wealthiest real estate day traders get that way because they do their research. You should too. It’s like that famous line by Gordon Gekko from the movie Wall Street, “the most valuable commodity I know of is information.”