BiggerPockets Real Estate Podcast

BiggerPockets Podcast 396: Post-COVID-19 Investing and Landing Great Deals at Auctions with David Osborn and Aaron Amuchastegui

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No one knows where the real estate market is headed next… but with an estimated 30 million Americans out of work, wouldn't you like to know how to buy foreclosed properties, step-by-step?

That’s what you’ll learn today, from two investors who have completed over 1,000 deals each: David Osborn and Aaron Amuchastegui. They begin the show by sharing their thoughts on today’s economy (hint: they’ve kept plenty of cash cash on hand), then walk us through their 5-step process for successfully bidding on foreclosed properties at auction.

From building a list of properties, to lining up funding, to checking title and actually making your bid, you’ll learn how David and Aaron (+ thousands of other investors) built serious wealth buying up distressed properties after the last big crash. This skill set is another tool to add to your tool belt, and whether there’s another wave of foreclosures coming or not, you can use it to build serious wealth.

For more, pick up a copy of David and Aaron’s new book, Bidding to Buy: A Step-by-Step Guide to Investing in Real Estate Foreclosures. And check out the show notes at biggerpockets.com/show396 for a transcript and other resources.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast, show 396.
You have to fall in love with the problem, because it’s also going to discourage other people. It keeps people out of bidding. Anytime it’s hard to do it, there’s less competition. Anytime there’s less competition, you’re going to get a better deal. Anytime there’s problems, as long as you have the solution to it, you can make a lot of money and have a ton of fun.

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Speaker 2:
You’re listening to BiggerPockets Radio, simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on, everyone? It’s Brandon Turner, host of the BiggerPockets Podcast, here for another phenomenal show. Today, we just got finished interviewing these two gentlemen. It was so good I just can’t even explain it. But before I get into that, and try to explain it, David Greene, welcome to the show. How are you doing, man?

David:
Thank you, Brandon. Thank you for remembering that I’m here. I appreciate that.

Brandon:
I always remember. I just have to talk and ramble for five minutes before I invite you to talk. What’s up, man?

David:
That’s actually a nice thing that you do, because it means that my words are more powerful when I actually speak.

Brandon:
I just don’t want people to … You get it too quickly and it’ll hurt them. It’s kind of like-

David:
You don’t appreciate it.

Brandon:
Well yeah. I give them the base tan, but then your heat comes in and you don’t burn them, right? It’s like throwing a Midwest person into the Hawaiian sun without sunscreen. You got to get them the base tan first.

David:
That’s very wise that you … Yeah, so you’re just saying that I’m so intense that I could just burn very easily.

Brandon:
You burn people in a very good way.

David:
Burn.

Brandon:
Burn people. We should have a tee shirt for that. We have the bird shirt? Now we’re going to have the burn shirt.

David:
The burn.

Brandon:
Get ready to get burned. That’s my tee shirt. All right. You can get it at biggerpockets.com/shirt. Seriously.
Let’s see, where are we going to go? Let’s go to today’s Quick-

David:
Quick Tip.

Brandon:
Today’s Quick Tip is actually in relation to today’s show. Today’s show, we’re interviewing two of my favorite people, two people that are mentors to me, I look up to a ton in every area of life, but especially real estate investing because they are rock stars. It is Aaron Amuchastegui and David Osborn. David, of course, was a keynote speaker last year at BP Con. And they wrote a book. It’s calling Bidding to Buy: A Step by Step Guide to Investing in Real Estate Foreclosures. It is fantastic. I actually read, brushed the entire thing this morning. I just got it in the mail a couple of days ago, read it, and knew I was going to do this interview today. And it’s so good.
We'll talk about more of the reason why buying foreclosures is such a good idea and why it's something you need to learn. But even if you don't care about foreclosures at all, listen to today's show because the stuff we have to talk about today applies to getting deals in any way you're going to get deals. Whether you're doing Driving for Dollars or you're going to do, even MLS. The principles are what matter today more than anything. Plus, it's just a really fun show.
So anyway, Quick Tip is, go to biggerpodcasts.com./auctionbook, and then pick up a copy of this Bidding to Buy. You can get digital, audio or physical, or all three, which is pretty awesome. So definitely check it out.

David:
These guys are stellar real estate investors. They each own hundreds of single-family properties. They’re mentors to both Brandon and I in our investing business. I say an episode that David Osborn was the person that got me into real estate sales. He’s the first person that introduced me, so you have so much to learn from listening to a conversation. And they’re fun. It’s always nice when you get to talk to smart people that make it fun that aren’t super dry. Have you ever found someone who’s really smart but you just thought, man, if you were a spice you would be flour? There’s no flavor here at all?

Brandon:
Oh, so good.

David:
That’s not the case today.

Brandon:
No, not the case today. Here’s the funny thing, I told the guys before we got on, “You guys, it’s a pretty simple concept, buying at auction. Let’s just keep this show to 40 minutes. We’ll be in and out. It’ll be a great show. We give people advice.” And this show was just an hour and-a-half of just like, fire. So with that said, prepare to get burned.

David:
Burned.

Brandon:
All right. Aaron, David, welcome back, both of you, to the BiggerPockets Podcast. How are you guys doing?

David:
Great.

Aaron:
It’s awesome to be back. I said it’s like getting the band back together. The last time the four of us got to hang out together was in Austin. It seems like centuries ago since the world was closed.

Brandon:
I know. Yeah, the world is definitely different today. Yeah, it’s weird today, but it’s changing, and this is actually why I wanted to bring you guys on the show and why we’re doing what we’re doing today. Is because … I don’t know about you guys, but we don’t know where the future’s headed. We don’t know what COVID’s going to do to the world. But I have a strong suspicion and belief that we are going to see a increase in the next couple of years of foreclosures and things coming up. And I knew you guys just wrote a book on that topic, so I wanted to dive into that today.
What do you guys think? I mean, before we can get into the actual show, what do you guys think of the future? I mean, where is it headed? What’s COVID going to do to real estate? I’d love to get your guys’ opinion.

David:
It’s such a great question, Brandon. It’s so unknown. I mean, in the last crash, which was ’07/’08 kind of-ish, the government waited two years before they got … Really ran the printing presses, right? So there was two years of pain and misery and terror and fear, and some of us went out and bought assets in that time/place. There was a lot of damage done to the economy. And then the government stepped in, printed money, and everything we bought went to the moon, because when you print a lot of money, most real assets go up in value.
And so I think a lot of people, me included, were expecting a similar playbook this time, but the government decided to print the entire GDP of Canada in six months. And so who knows what’s going to happen? I mean, my real estate company’s had a terrible April and a poor May, and then a average June, and then the greatest July we’ve had in the history of the company. Ultimately, though, if I had to make a guess, I would guess that 2021’s going to be worse than 2020.

Brandon:
Yeah. What do you think, Aaron?

Aaron:
Yeah. I think I would definitely agree with, I think the 2021 will be worse than 2020. This has been the strangest, most bizarre thing, because when this first hit in March, I fire sold some properties. I put them on the market below what I thought because I said, “Hey, I want to sell these fast before the market crashes.” Well, I was wrong, because houses right now today are selling for more than they were selling in March or April. I put a house on the market this last week and received five offers in a day. I thought it was going to sell for $120,000. I listed it for $140,000, and I got multiple offers and sold it for $150,000. And it was a $120,000 house selling for $150,000. So that’s bizarre, right?
You see, there’s different things that are making the market go boom. Like David talked about, there’s people printing money and there isn’t a whole lot of inventory still. The interesting thing that we’re seeing when it comes to, do I think foreclosures are coming? I think there are. I think there are more foreclosures coming. Some interesting stuff that we’ve seen this time … So right now, Texas will usually have 5,000 foreclosures every month that happen. And of those, 2,000 actually sell. Well, in the last six months, they’ve only been posting 1,500 a month and only 50 a month sell. So there’s already 10,000, 15,000 that have been vacant and abandoned since pre-COVID, that are going to sell as soon as sales get turned back on. So all of a sudden we’re going to see this influx.
And this month, for sure, we see more strange commercial foreclosures than we've ever seen. Really famous bars and restaurants in Texas getting scheduled for foreclosure, huge strip malls, medical office buildings, storage unit complexes, and an RV mobile home park. And so all these different things scheduled for foreclosure right now. And every time a business crashes, I mean, all sorts of things that that applies to, so yet to be seen. The real estate market is a funny thing. I do think that the government's going to be a lot more proactive this time. But I just feel like it's going to get worse before it gets better.

David:
But then on collections, too, it's been very high. We certainly expected and prepared for, and were tightening our belt for a dip in collections. I think, between my fund and me, we've got 500 single-family homes, and collections haven't taken a blip. But it's got to be in my mind, because everyone's getting an extra $600 a week, why would you … You're stuck at home, you get $2,400 extra a month or whatever. Why would you not pay your mortgage? Why would you take even the smallest risks that you don't get to hang out in your house, chill and waiting for the economy to open up? So collections haven't gone down. My friends that have multifamily were the same. It's a real disconnect when you have 10% to 14% unemployment and yet everyone's still paying their bills. And how long can the government do that? Maybe for another 10 years, maybe for another six months, I don't know. But as long as they keep giving everyone extra money which they're trying to do again, I still think real estate in the long run's a great place to be.
One exception, what Aaron talked about, it seems like condos are hurting a little bit. I don’t know if you guys have noticed that, but in the big cities-

Brandon:
Massive, yeah.

David:
… I had a condo in downtown Austin. I sold it immediately. COVID hit, and there was only two units for sale when I sold it. I got a full price offer but I did price it $90,000 below what I have pre-COVID, so 8% discount. Because I'm a real estate guy so I understand you don't want to catch a falling knife. You want to be ahead of it. So I just went ahead and cut it. And now there's 28 units for sale in that same building, [crosstalk 00:09:07].

Aaron:
Yeah.

David:
That is exactly what we see in the Bay Area. People are getting out of condos because they want a bigger … If you can’t live in a busy inner city with restaurants and all the thriving life, when you get a condo that’s what you’re paying for, is location, and you’re giving up space. And now what’s the point of being there if everything’s shut down? So they’re all moving into the suburbs and those houses are having a ton of demand.
I want to ask you guys a question. I've said this. I want to see if you're on the same page, and this is really important for listeners. I think, in 2010, we knew we were in a down market because prices of homes were dropping. There was a red arrow pointing down every month as prices went down. And now, when you throw the stimulus into this, it's very hard to measure that. But it's possible that your property is losing value but the price is not dropping, because so much money is being printed that the value of the money itself is less. And if you're waiting to see prices fall, you might never actually see that, but you could still be in a recession. It's another variable, another layer of complication that you have to be aware of when you're in the economy.
So Dave, you recognize how the condo market could change. You got out quick. It could have been though, that the prices of condos weren’t actually going down. They were holding similar, they were holding the same, but all the single-family homes were going up rapidly as all this money comes in the economy. How much do you guys think about then when you’re making financial decisions about what to sell, what to buy?

David:
Yeah. Well, David, you bring up a really good point which is, cash, what's the value of cash? Because if your real estate is losing value but actually going up on a numerical basis, then cash is getting murdered. And I'm heavy cash right now because the reason I did so well in the last downturn is, I was heavy cash. And in a crash, in a real crisis, cash is king, but I do think about that a lot. I think about whether I should or shouldn't be in cash. And I'm earning zero on it, which means I'm probably losing 3% to 5% per year on it, maybe per month, I don't know. It depends on if we're in Venezuela or America.
But from my point of view right now, I still think cash is the position to be in. And I’m shocked at the stock market, too. I’m sure you all are, as well, that it’s just gone up and up and up. But it has to be something with the printing of the Fed. So I’m going to be holding cash through about the first quarter or six months of next year. And then if I’m wrong continuously up until that point, then I’ll probably have to park it somewhere and get some low yield just to keep it growing.

David:
But it is worth noting that, it’s not as simple as it used to be, hold your cash, wait for prices to jump back in. Now that we’re actually adding money to the money supply, it’s very hard to keep your finger on the pulse of what something’s actually worth.

David:
It seems like the economics is no longer connected to reality. When the government jumps in like they are, all the global governments are, too, everything we were taught in school and college and what makes street smart sense to us, doesn’t seem to apply.

Brandon:
Yeah. I like to use it now. I’ve said it on the show before, but I’ll say it again now, is, I feel like we’re the Road Runner cartoons, where Wile E. Coyote is chasing the roadrunner. And they run off the cliff, and Wile E. Coyote’s just standing there in open space. And he doesn’t realize until he … And when he looks down, that’s when he falls. We are, as a society, over the cliff right now, and there’s nothing underneath us. We just don’t know it yet.
And so we may just keep running across and land on another mountaintop, another cliff on the other side and be fine if we get to this COVID thing and they’re able to support us, little clouds on the way across. Or we may just fall. But this is why this show is so important, is because, let’s be honest, the world could crash. I mean, real estate could crash. We could see huge property prices plunge. We could see foreclosures rise, and just go crazy. And, there’s going to be a tremendous amount of opportunity for investors.
Or, we may just continue this crazy competitive world that we're in right now of real estate, and foreclosures and buying at auction is still a really good … because not many people are doing it. It's not like it's common to just call up a real estate agent and finding deals. Regardless of what the world does, this topic is going to be incredibly important over the next few years. Do you guys agree?

David:
Absolutely.

Aaron:
I agree. And real estate is the space to be, regardless, because if things just keep inflating, real estate inflates, rents inflate. If things get bad and you've got real estate with not too much leverage, and you got a good tenant in there that's got a good job, and you find the right ones by doing credit checks, you're still getting paid. And you still get to hold on for the longterm, so regardless, real estate is the safest place to be.

Brandon:
Yeah, I totally agree. All right, well, with that, let’s get to today’s show. That was a long intro.

Aaron:
You have a good show already.

Brandon:
Yeah. That [crosstalk 00:13:33]right now. We could wrap it up right here. But I want to go into your other story, for those who haven’t listened to your episodes before, you guys have both been on the show before. Can you give a quick, just one-minute introduction? Who you are, how you got into real estate, and then your relation to this whole auction foreclosure thing, maybe. I’d love to get a story on that.

Aaron:
Sure, I’ll go first. My background is real estate for … My dad was a killer, he was a green beret, and my mom was a realtor. So I had a choice. Did I want to go kill people or become a realtor and I chose real estate.

Brandon:
Good choice.

Aaron:
I got into real estate as a sales agent in 1994, sold for three years at Keller Williams, a fast growing company, started opening brokerages. Built the largest Keller Williams brokerage group in the country. We sell about $12 billion a year in real estate. My partner, Smokey Garrett from Dallas and I. And we’ve got a great team of agents, 5,000 agents who we serve who are amazing. And we’re the number one in Dallas/Fort Worth.
And so then also, along that journey, because I love real estate and there's so much in real estate, started investing in single-family rentals in 1995. Saw a huge opportunity in the last crash and probably bought and sold close to 1,000 homes, kept 101 single-family homes in my portfolio. And then I also started a private equity fund a few years ago to invest in single-family rentals. We now have just over 400 homes in that. And then bought multifamily and industrial and retail and office, the whole bit. Everything you could think of doing in real estate, but primarily residential real estate.
And when you’re buying residential real estate, you’re looking for an edge, and foreclosures is a great place to find an edge.

Brandon:
Awesome.

Aaron:
Yeah. And my story-

Brandon:
Aaron, would you like to follow that up?

Aaron:
Yeah, I'm just here. Right? Let's just go to the next question, and we're just going to compare resumes. I'll just go to question three and see if I do any better. I grew up in a family that was a construction-type real estate-type company. My dad was a custom home builder, built really, really nice houses. And he would buy lots and subdivide them and try to do subdivisions. That was in the early '80s, though, so subdivisions didn't perform well in the '80s. Interest rates were 15% and if you made a bet in real estate back then, it didn't do very well.
What he became really good at, was custom home building. So I knew I wanted to be a builder. I went to school down at Cal Poly, San Luis Obispo, in construction management. But this was also at the height of the housing boom. So I went down there to try to learn construction and move back up to this small town in Oregon. And then I saw down in Southern California, houses were flying off the shelves. People were spending a few hundred thousand to build a house and they'd sell it for $600,000, $700,000. It was just crazy and I got really fascinated with the business of that side of real estate, buying a property, adding value, selling it and flipping it. When I graduated in 2005, it was the height of the housing boom. I got to be a director of operations for a home builder that was doing really well.
And that was an unrealistic expectation of what was going to happen in life. I was getting paid six figures, straight out of college. We were golfing three days a week. As fast as we would build the houses, they would sell. Somewhere in there, 2007, 2008, market starts to crash, absolute blood in the streets, we get put out of business, and we spend a year just trying to do all sorts of different stuff. My wife was a waitress working nights. We were trying all these different businesses. We started trying to buy REOs. REOs were impossible to buy, because we were late. If you started trying to buy REOs six months after the crash, you were too late, because they already knew which agents they were selling it to, which guys they were putting it to as the flippers.

Brandon:
And when you say REO, what does that mean, for those-

Aaron:
Yeah. An REO is a foreclosure that is a normal one that you would see on the MLS. You’d see a realtor sign in the yard, it would say REO, and that means that the bank foreclosed on it so the person there stopped making their payment. It went to an auction. Nobody bought it, and it became a foreclosure. And so then an agent could go get those as a listing. And back in 2009, they would price them for $50,000 below what they were worth. There was spray paint on the walls, there was concrete … But they were bad. And the bank would say, “Hey, we’re not going to do anything to them. We’ll just put them on the market and list them.”
Somewhere in there, we discovered that the way to actually get houses was go where people weren't. Buying on the MLS from an agent, there was a lot of competition in that business. And we talk a little bit in the book about that, but we talk more about how to get it in the processes earlier. We talk about buying upstream. If you buy it by the time it gets to the MLS, it's already missed a couple of stages that we could have bought it before. And when you get to the MLS stage, a lot of people were trying to buy those. We kept trying to start different businesses and we discovered how to buy on the courthouse steps at auction. We had to figure out some systems that really helped us get that advantage.
And I flipped 1,000 houses over the next few-year period in California. That went really, really well, but I didn’t buy any single-family rentals at the time like David. So in 2013, 2014, when it was no longer hard to do, all these big hedge funds came into the business, we got put out of business. We had heavy overhead, employees, and by not being able to buy houses, we lost money. Not from buying bad houses, but because I had a company at that time. 2015, I got to start again.
I shifted gears, started doing foreclosures. This time, started buying rentals along the way, too. And so now I have built that, have 350 rentals close to Austin, Texas, and still love going to auction. It’s still my favorite way to buy houses. I’ve never been good at, when somebody says, “Hey, give us your best and final offer,” I’m never good at blindly offering against myself because I’m very optimistic and very aggressive. I like to say, “What’s the least amount of money I could possibly make?”
The cool thing about foreclosures is, you bid against other people and you have this maximum that you say, “Oh, I’ll pay up to $150,000,” but you might only have to pay $120,000. Because you’re bidding head-to-head with people in a live auction. I love live open auctions that people can see. I’m good at that. I’m not good at blind auctions, I guess.

Brandon:
That’s cool. You guys wrote a book. We’ll talk more about it a little bit later, but it’s called Bidding to Buy: A Step by Step Guide to Investing in Real Estate Foreclosures. I want to go into some of the basics. What is a foreclosure? How does that process work? How does somebody get foreclosed on? Can you give, just either one of you just give an overview of what that world looks like, and where you step in to buy these properties?

Aaron:
Yeah, sure. To buy a house, most people buy a house by getting a loan on it. If they're going to buy a house for $100,000, they get an FHA loan. They're going to get a $97,000 loan. If they're going to get a conventional loan and put 10% or 20% down, they're still going to get a loan for $90,000 or $80,000. Most people that buy houses out there, they don't just have buckets of cash. They get a loan to buy that house. And every month, they're supposed to make a payment for that.
The different states have different guidelines. In California, for example, when someone stops making their payment, they get a notice from the bank that, it’s a 90-day notice, says, “Hey, you didn’t pay your mortgage this month. If you keep this up for the next 90 days, 90 days from now, we’re going to have a foreclosure auction. You’re going to get foreclosed on.” Same process in Texas, but when they stop making payments in Texas, it’s a 21-day notice. It says, “Hey, you missed your payment. We’re going to foreclose on you 21 days from now.” In California, if you stop making your payment, 90 days later is the auction. In Texas, if you stop making your payment, your house could go to auction as soon as just three weeks away.
There’s states that do judicial foreclosures, where judges, they actually have to go present to a judge first and say, “Am I allowed to foreclose on this or not?” There’s also nonjudicial foreclosures, where they’re quicker. They don’t have to go before a judge. They just have to send a notice and say, “Hey, somebody didn’t pay.” At that stage, when someone has stopped making payments and they’ve gotten a notice from their bank, we call that a pre-foreclosure. I guess it’s somebody in trouble. They’ve stopped making their payments. They knew they stopped making their payments, and they have started the process to be foreclosed on to lose their house. Pre-foreclosure stage, they stop making their payments and the bank has put them on notice.

Brandon:
And to some of us they would just target just pre-foreclosures, right? They get that public data list and they direct mail them or whatever?

Aaron:
Yeah. And it’s a lot like buying a vacant house. People talk about Driving for Dollars. You go drive by the houses that are really, really beat up, and that person probably wants to sell. Or you drive by one where someone has stopped mowing their lawn, they don’t care. Pre-foreclosure is like that. We call them a motivated seller, but they’re being forced to sell. They’re motivated in the sense that they don’t necessarily want to sell or lose their house, but they aren’t able to keep it. And so yeah, so a lot of people will target that pre-foreclosure notice, because it’s somebody that, they’re in trouble, and 90% of the foreclosures right now actually have equity.
So what’s really unique about that person with the $90,000 loan that they’re not paying, their house is probably worth $120,000 now, but they don’t necessarily know what to do. They put their head in the sand. A lot of time when you’re calling the pre-foreclosure … Yeah, so that’s a unique lead all to itself. Somebody that’s in trouble, doesn’t necessarily know what to do. Huge opportunity for investors, real estate agents to find somebody at that stage.
Then the next step that happens is, the foreclosure auction. They call that the trustee sale. A lot of times that is on the courthouse steps, where you’re standing outside on the steps. People are bringing cashier’s checks in their pocket, and they’re bidding against an auctioneer. That’s a live trustee sale. Sometimes it’s in a hotel where they’re doing it. Sometimes it’s on the steps of the house. Some of the states in the east are like that, where they actually hold the auction at the houses themselves.
We call that the courthouse step auction. They'll say the opening bid is now $100,000. That lender, if they have a $100,000 loan on it, they could decide to have the opening bid be $100,000 plus any of their legal fees. So they could say, "All right, opening bid $107,000." Or that lender could decide to have the opening bid be $50,000, or $60,000, or $70,000. They can't make it $150,000. They're restricted by how high they can go, based on what's in there, but they can make it as low … They can say an opening bid's even a dollar if they want.

Brandon:
So the lender chooses the amount that they’re going to start the bidding at? Is that what you said?

Aaron:
Yep. Yeah.

Brandon:
Okay. I didn’t know that.

Aaron:
And back in 2009, when the foreclosure crisis first started, it was totally random. They never really knew, they weren’t trying to maximize stuff. Now they’ve gotten much smarter. They actually price houses to see … If they want to sell the house, they’ll actually see maybe this one’s under water, they’re going to discount it 30 grand because they really want it sold. Or there was a fire or something else. They used to not pay much attention. Now they’re paying attention. If they want to sell the house, they lower it to what they think the highest amount is that it’ll sell for still. And if they don’t want to sell the house and they think they want to fix it and sell it on the MLS, they’ll do it for that $110,000 amount.
That's the auction stage. If you show up with checks and you buy it, you are the new owner of that property. Now, there's different stages that takes a few weeks to get your deed, but now you buy it. If nobody buys it at that stage, then they say it goes back to the bank. So nobody bid on it. They said opening bid is $106,000. Everyone's like, "Oh, that house sold over $100,000. Nobody wants it." They'll say it's sold back to the bank. Now it becomes an REO. REO stands for real estate owned. That can mean people owning all sorts of stuff, but it had become the term that people talked about for bank-owned houses.

Brandon:
There’s an accounting term that banks would use, right? This is on our asset books as real estate we own?

Aaron:
Yeah, absolutely. Other people have used REO as their notes, too, as are assets, but it just became the slang of, “This is a bank-owned foreclosure.” Nobody bids on it. Now it becomes an REO, and the banks have two ways to really get rid of it at that point. They list it on MLS. They hire a local agent that goes and does open houses and sells it like you would see a lot of transactions. Or now there’s also a common way they hire these auction houses, that are a lot like auction.com and some other websites where they’re saying, “Hey, nobody bid on it at auction. Let’s just try to sell it online now.”
And those are three stages; a pre-foreclosure, you can buy a house pre-foreclosure. At that time, you’re buying it direct from the owner. People are like, “I want to call the lender.” Well, until the house actually sells at auction, that previous owner still owns it. They can pay their loan back that day. They could pay the loan back 10 minutes before auction and the house is still theirs. And then there’s the auction. And at that point, if nobody buys it and it goes to the lender, then it becomes that REO stage.

Brandon:
Makes sense.

David:
Beautiful. So when you're trying to buy it in the pre-foreclosure stage, I've often heard this called the Notice of Default. It's probably different for every state, but at some point the bank is required to tell the owner and the public, "Hey, this house has fallen behind. It's going to go to auction." That's actually how I got my start in real estate, was Tim Rhode, who we've had on this podcast, he's another GoBundance member, hired me to go knock on those people's doors, and say as an 18-year-old kid, "Hey, you're going to lose your house. Do you want to sell it to us before that happens?"

Brandon:
Oh, wow.

David:
Which was obviously … And at that point, I was not the David I am now. I was very shy, very skinny. It was a hard job for me to have. That was my exposure to real estate. And then he would buy them before they were foreclosed. It was a win/win for the people. You’re going to lose everything. At least sell it to us, save your credit, maybe get a little bit of money.
Then the courthouse steps would be what you're describing of, if no one buys it, it goes to that point. That's where you got to pay all cash. We'll ask you guys a little bit more about what are some of the areas that you want to tread lightly. I know you may not always get title insurance. You're probably not going to get a home inspection. Things that most investors are expecting don't happen there. And if it doesn't sell, then it goes to be REO. You could buy it on the MLS through a realtor at that stage.
And I like, Aaron, that you pointed out, it’s not 2009 anymore. There was a time where, if it was REO, that basically meant fire sale. You got a screaming good deal. The bank didn’t know what they were doing with it. The asset managers of the banks were clueless when it came to real estate. But they got hammered at that time and they’ve learned, they’ve adapted, like the matrix, the machines have figured out how to come back. You’re not always going to get a screaming good deal in the same way.
Sometimes, at least in my market, that REO inventory is no different than all the other houses that are on the MLS. I’m looking forward to listening to you guys share with us a little bit about what strategies you’re suing at each stage to be able to find deals.

David:
Well, first off, just to jump in real quick, what a beautiful way to get broken into real estate, man, knocking on doors. I was a shy kid too, man. My first job was walking through skyscrapers, walking right past the no solicitation sign and trying to sell them, not copiers, but computer systems. It’s such a great way to develop a thick skin and skill.

David:
Oh, god, yes.

David:
And Tim’s a great guy and what a blessing for him to have made you do that early.

Aaron:
Yeah.

Brandon:
That’s a very nice way to say it.

Aaron:
As long as no one shot you, I guess.

David:
Tim Rhode was the one that brought me into this. Oh yeah, I was close to getting shot several times. They’re opening the door, it was like pit bulls coming out. Because they’re just being harassed by creditors all the time. They don’t know the difference between you and anyone else. The minute you say real estate, comes out of your mouth, you’re the enemy.
But the key distinction is, you’re doing them a favor, though. You said that, David. You said, you’re actually, if you can catch them, you’re doing them a favor. Because they’re about to lose everything. Most of them are completely head in the sand, angry. Like you said, they got their pit bulls, but they’re not taking action to save any of their equity. And if you catch them at that stage and say they got $50,000 in equity, and you give them a check for $25,000, you made $25,000, they made $25,000 they probably would never have had. And it saves them from doing stupid stuff, which people do, is tear stuff apart and break up the house. Then they just lose even more.

David:
Yep. Their credit gets hammered. They can’t buy the house again. It’s a very good point. What I learned at that stage, was this theory that I have of, you don’t argue with an angry person. You get in a fight where both of you are just throwing crazy punches. When they’re mad, you just cover up and absorb every punch without getting knocked out. And once they’re done, that’s where you can say, “I’m not here to take your house. I’m here to stop you from the other guy taking it from you. And you and I are on the same side.” And then everything opens up. They’ll actually listen to you.

David:
[crosstalk 00:28:44]take it away with wisdom again, but I got one more thing to add. Sometimes we go in and pre-foreclose, buy the house in pre-foreclosure, and then sell it back to that individual. So they don’t even have to move out. They stay in. They don’t lose all their equity, and they get to reclaim their house, because we’re kind acquisitors. We’re not ruthless acquisitors.

David:
Greedy real estate investors selling people their houses that banks were going to take. Yeah. For people that don't know, Dave Osborn here is actually the one that brought me into Keller Williams to become a real estate agent. Tim Rhode got me into real estate. Dave got me into selling real estate, and that's my whole little world, I hear through [crosstalk 00:29:20].

David:
And we’ve all been in awe of you ever since, man. You’ve been just crushing it.

David:
Thanks, man.

Brandon:
Yeah, he has been. I want to jump in real quick with a story. I want to pull a story out of … I think it was Aaron, this is your story in the book, about your very first foreclosure auction that you went to live. And there was something about a skateboard in there. Do you mind sharing that? Because I know people are going to read the book anyway, but I just love this story.

Aaron:
Yeah. It’s really the epitome of risk versus reward and why there’s … MLS is easy. You see it online, you get title insurance, your purchaser goes and makes the offer. And when you’re doing that, there’s like 30 other people that are going to look at it, too. It’s like supply and demand. Less people buy on the courthouse steps because it is a little hairier, but you hope to get a better deal.
Our very first auction we went to, so we had made hundreds of offers direct to agents for REOs. And we had to make an offer five seconds after it got listed. We kept trying and they’d be like, “Sorry, it’s already sold.” And we’re like, “What do you mean? We made it $10,000 over asking within two seconds of you listing it.” And we couldn’t figure out how we got in and we just kept beating our heads. At that time, there was a company that had just come out, Foreclosure Radar out in California, and they had an ad … I don’t even know where we saw it, because there wasn’t social media when we were doing this. But they were selling foreclosure lists and one of the guys that I worked with at that time, the home building company, he owned this house right next door to one that had come up on there. And he was like, “Wow, my condo’s worth …” I think it was $220,000. He said, “If we can actually get it for that, $140,000, that is scheduled for auction, this would be a great deal.”
And we were like, I don’t know if this is going to work out or not. I don’t really know how all this is going to work. We were pretty skeptical. I mean, we had been working really hard to break into this industry after getting crushed in the new homes. So we started researching those houses, and there was a few quick steps that I’ll jump into. We started going and reading the foreclosure postings. We’re like, “Well how does this work?” There was no classes at the time, no one teaching you. We went and then watched a foreclosure auction. There was three bidders there and they did not want us to be there. They weren’t trying to talk to us. You would ask them questions, they would ignore you. You’d flat out talk to them like I’m talking to you here and they would act like they don’t hear you. They do not want to teach people how to do this.
So then we went in and we started just reading the foreclosure notices by searching the owner's name and going, "All right, how does this work? What houses are there? What loans are there?" We read through the loans, and in the actual loan document, it says, "If you haven't paid, then this is what the process is." And then there was that notice of default and the notice of trustee sale that got recorded, that David Greene talked about that says, "On this day, there will be an auction, and this is going to be the opening bid for it. It's going to go to sale."
We show up there and there is a guy who cruises up in a skateboard and he pulls a laptop. His name is Eddie. He became a great friend of mine, but at that time we didn’t know Eddie from anybody. And he comes up on the skateboard, pulls his laptop out of his backpack, and sets it on top of the trash can in front of the county building down in Sacramento. And all of my NorCal people, you guys know Eddie and you love Eddie, and you’ve seen him there. But he comes up, puts his laptop on the trash can, and he starts selling houses. And he’s reading addresses. And man, he was the auctioneer like what you would see. He would sell them quick. He would do a name, “123 Main Street, opening bid, $100,000. Going once, going twice, sold.” Because he wanted to get in and out of there. He didn’t get paid more if it sold or not. He got paid the same, so he wanted no one to buy it so he could get in and out of there really, really quick.
Our house comes up, and he says, “Going once, going twice.” And the guy that I worked with says, “Excuse me,” and stopped him. He goes, “Yes?” Because by then they had seen us show up a couple of days in a row. They weren’t talking to us. And he goes, “We want to bid on that.” He goes, “Okay. Would you like to do a penny over?” And we go, “Yeah.” He was, “Okay. A penny over. Going once, going twice, sold.” And he grabs the cashier’s checks out of our hand. The moment he did that, the other three guys that were there, they go, “Oh. Oh, my god.” We’re already terrified. We’re like, “Does this even work? What’s going to happen?” And they start laughing and sighing, and they’re like, “Oh, my god, we can’t believe you guys bought that.” We’re like, “We just lost.”
At that time, we didn’t have any money, really. The $150,000 that came out was from partners from the company. We were trying to rebuild all sorts of stuff. So we start filling out the paperwork with this guy, and we’re asking him all sorts of questions. Do we know this is a first? He’s like, “That’s not my job.” And he keeps filling out this piece of paper. It’s a pink sheet of paper, is the receipt that we get. And then he hands it to us and he goes, “What address do you want the deed sent to? Where do you want the receipt sent to?” That time, let’s say we bid $140,000, we had to give $150,000 in checks. He’s like, “Where do you want the refund to go?” So we’re filling that out. And so he hands us back this sheet and it says, TS number at the top. We gave him a $50,000 check, a $50,000 check. And there was a receipt and it says they owe us $10,000 back and they’re going to send the deed and the refund to that address and are vesting.
And we’re like, “Okay, can you put the address on here?” And he goes, “Well, no, that’s not our job. We’re not guaranteeing any address. It’s just, that’s the loan that we just did.” And we’re like, “What do you mean?” Right? He goes, “No, so there it is.” He finishes his auction. We’re looking at this receipt, figuring out what’s going on and he skateboards off with our cashier’s checks, with our life savings at the time. And so now we’ve got this receipt and we’re going, “Is anything actually going to happen?” Because every time we asked a question, nobody there was trying to make us feel better. Everything they answered made us feel worse about the decision we had made.
The long story short, two very long weeks later, we get a deed in the mail, and it says, all right, here’s the trustee’s deed and there’s a note in it that says you have to go record this. Then we go to the recorder’s office. We record it. We get it back. We ask the title company to now do a title search on it. Three days later, they give us back our title search and it says, “Lo and behold, we own the house free and clear.” And man, it was a crazy experience. It was crazy beginner’s luck. We sold the house for $50,000 or $60,000 more than we had bought it for.
We were off to the races, and over the next three weeks, we went all the time. We didn’t get to bid on a single house. We had gotten so beginner’s luck, and we hadn’t figured out a system yet at that time, but that first auction was … It was crazy, nerveracking and definitely God’s purpose, I guess. Because if we hadn’t bought a house that first time, we would have realized a couple of weeks later this was too difficult. We would have tried a different business.

David:
Did they ever tell you why they all gasped when you bought the property?

Aaron:
They did. On the foreclosure radar notice, it says loan position one or two, and it said two. But that didn’t make any sense to me, because when I looked at it, there was a $25,000 loan and $150,000 loan. And the data servers at the time had put it in reverse order. So the $25,000 loan was actually recorded first, but when I went and read the loan document on it, it said, “This loan is subordinate to this $150,000 loan.” So they were recorded in the wrong order, and the only way you figured that out was by actually reading it. And it was that beginner’s luck that we read it all because we were so scared of everything. They just saw, “Oh, it’s a second. We’re not going to bid on it.” So they thought for sure that we lost the money.

David:
So they thought you bought the right to the second position lien, but the first lien holder could control the foreclosure and you would never be able to get the money? Is that what you're saying?

Aaron:
Yeah. In California, it was very common for somebody to get a first and second, maybe even a third loan on a house. When you buy a house in foreclosure, whatever is recorded after that, goes away. If there’s a $100,000 loan and a $50,000 loan, and you buy the foreclosure on the $50,000, you still have to pay off the $100,000 to get free and clear.

David:
Because that was before?

Aaron:
Yeah, because that was recorded before. They call it lien priority. In real estate, there’s a lot of lien priority. That’s what title companies do for us, though, and in foreclosures you don’t get that benefit. So yes, they thought that we were buying a second, that we weren’t actually going to own it, or we were also going to have to pay off that other loan. And if we had to pay off that other loan, it was no longer a [crosstalk 00:37:08].

David:
Because it’s an extra $150,000 that you would have had to pay off? Right, Dave?

David:
Yeah, exactly.

Brandon:
Let me jump in here for a minute. I have a question. How does somebody know … And I know you covered this in the book, but just those who don’t read it, how do you know if there’s a lien on a property? Because I mean, that probably terrifies most people thinking right now is, “What if I paid $100,000 for a lien and then there was another one I didn’t know about that wiped me out? I just lost all my money.” That’s one of the big dangers of buying foreclosures, so how do you know that kind of stuff?

David:
A lot of them get wiped out at foreclosure. It’s just some that don’t. Ideally, in a foreclosure, it clears out most of the liens. Aaron, what are the kinds that don’t get wiped out?

Aaron:
A lien that's in a higher position doesn't get wiped out. If there's two loans recorded at the same time, those are the scary ones. Those are when we've seen people actually lose hundreds of thousands of dollars in loans, but people are scared of most of them. Federal tax liens don't go away. Estate tax liens do. And a federal tax lien can go away in 120 days but it makes it to where you have to take longer.
There’s a lien called the UCC Filing. That could be a county lien, that could be if somebody adds solar panels or a water heater, or things like that. Those are the sorts of liens that are added after the fact that are superior no matter what. Now sometimes those are really small. A UCC lien in Texas most of the time is a water softener. So after you buy it, it’s a $1,500 lien you’re going to have to pay off. Recently, I bought a house. Last year we bought a house and it had a UCC lien on it. We didn’t know how much it was. We assumed it was $1,500 and it was actually for new siding, and it was for all new siding on the house. So we ended up having to pay $15,000 or $20,000 after the fact for that one.
UCC liens will survive. Loans that are in a superior position will survive, and anything that’s a county or a city thing. If somebody stops mowing their lawn, the county or city will lien them, water liens, utility liens, things like that.

Brandon:
Okay. That makes sense. And then, you just go to the county, you sit there and look in their file cabinets for what liens are there? Do you hire a person for that? How did that work?

Aaron:
Yeah. It’s way easier now than it used to be. Most counties, you can actually look online. But it used to be, we would go to the county courthouse the morning of auction, and you start typing in the name of the owners. And when you do that, you type in the names of all the owners on the property. So if it’s a husband and wife, you want to type in both their names. You might see a document somewhere along the line that a son was one of the members of title, and you start adding more names. You search their names at that county, and it’ll have those things in there. And there’s some really interesting things. You’ll see marriage certificates, you’ll see death certificates. You’ll see, here’s a lien. You’ll see a federal tax lien. Then you might see another document that says they paid off their federal tax lien and it’s gone.
But it is as simple and complicated as that. You go to the recorder’s office, you look up their name, you look up the property, and you read a whole bunch of documents. If there’s 20 documents to read, you actually look at them all. It could be at the end of it, none of them are actually liens, but that’s how you go find them.

David:
But also you get a title search, right Aaron? You can get a title overview, right?

Aaron:
Yeah, absolutely. When you’re buying it on MLS, it’s really easy to get a title search. It takes three days. If you’re trying to buy a foreclosure, five years ago there was no way to get it. Now, some title companies will do quick searches for you. They just don’t insure them. They’ll look through it and they’ll say, “Hey, we think this is a first position, and we’ve seen these liens on it.” But they’re trying to do 100 files in a period of a day that you normally pay a couple of thousand dollars for. Now you’re paying $20 apiece. So they’ll say we did our best job in a five-minute search, but it’s not going to be perfect.
I try to teach everybody how to do it themselves, and get a title company to do it. And the ones that you really like at the end, you’re just double checking. And nobody’s going to care about it as much as you are, unless you’re paying them. If you get to pay a company for a title search, they’re going to do a great, great job, but for pre-foreclosures, you can’t get a real title.

David:
And then also, if it's a second or a third lien or a contractor lien without the UCC, all that gets wiped out. And then if it's the federal lien, if it's the government lien, they only exercise that by buying the property. Let's say they owe the IRS money and there's a lien on their property. You don't have to pay the IRS the $50,000. The IRS just has a certain amount of days to acquire the property themselves and pay you off as the lien holder; is that correct, Aaron?

Aaron:
Absolutely. Yeah, so if you want to sell it in less than 120 days, you pay the $50,000. There may be some case where it’s maybe a really small IRS lien that it’s better to pay that and flip it. Or if you wait 120 days, if the IRS hasn’t reached out to you then, then you can sell it. 120 days after the time your deed was recorded, that then gets wiped out.

David:
Can we briefly define what lien is, for the people listening, that haven’t heard that phrase before?

Aaron:
It’s like, when you get a car, you get a loan on your car. There’s a lien on your car, and if you don’t pay that, they can repo the car. And if you try to sell it, they make you pay it off. It’s the same with a house, like we talked about that loan. Loan is the type of a lien that’s saying somebody loaned you the money, and you can’t buy a house for $100,000. Get a $90,000 loan on it, sell it to somebody else for $100,000 without paying off your lien.
The reason they call it a lien is, they record it against the property, so it says yes, you own it, but you still owe somebody that $90,000. And that lien can become all sorts of things. Banks will give people loans, and they’ll put second liens on houses. You can get a business loan and get a lien on your house, or the things like the water heater and other stuff. If you don’t pay your state taxes, if you don’t pay your federal taxes, companies want to figure out what you own and put liens on them. Bail bondsmen in California, you’ll see a lot of bail bondsmen liens on houses.

Brandon:
I had a contractor once steal $5,000 from me. I paid him $5,000 to do windows and he walked out with the money never ordered them and just stole it. The guy was a local guy, so I went to my attorney. He walked me through how to do a small claims thing. So, I mean, he was walking me through this whole thing. We went through small claims court, obviously won, put a $5,000 lien on his house, on his primary residence where he actually owned. And then four years later or three years later, I get this random call from a title company saying, “Hey, somebody owes you money and they’re selling their house and they can’t sell it unless you sign off. So we’re going to be paying you back now.” And I ended up getting paid back, that and interest and everything.

David:
Brandon, I had the same thing. I was a lawn mower kid and this guy stiffed me for a bunch of mulch, so I took him to small claims court, won a $400 or $500 settlement. Forgot all about it and then four years later, I just got a check in the mail for $400 or $500. I was like, “Oh, I got you back!”

Brandon:
Yeah, exactly. [crosstalk 00:43:12].

David:
It was great.

David:
A lien is when someone is owed money, and a property or something is used as collateral. So that person didn’t have the money to pay Dave for the mulch, so Dave put a lien on his house, which because only a judge can put the judgment against that property. [inaudible 00:43:27]suppose it was some form of a mechanics lien. And then when the house sells, the title company has to go pay back the lien holders before the owner of the property gets the rest of the money, correct?

David:
Yeah. They won’t let you sell it. It’ll be held up until you sign a release. In my case, the guy wrote me a hot check, so it was very easy. I won immediately and they put the hot check on his house. He may have got pulled over for a ticket. Either way, I got paid. It was great. But most liens aren’t … And just, because Aaron has now scared all the listeners, Aaron, how many homes actually have a lien on it? I would bet it’s what, one in 10 maybe that has this kind of an issue?

Aaron:
Yeah. The [crosstalk 00:44:05]. It is a small percentage. It is a 5% to 10% where there’s any significance. And really, it doesn’t stop us from buying them. It’s just one of the steps to price it in. Right? A $1,500 lien shouldn’t stop you from buying the house. Brandon and David’s two examples, that’s the best reason the liens exist. That’s when people deserve to be paid something and they’re not. But if those two houses would have been foreclosed on, the bank gets their money first. They do the loan, so if there would have been more money paid off, then David and Brandon would have got paid off.
But liens aren’t a reason to not buy foreclosures. You need to do your research and be prepared because that first house we bought, everybody thought there was a first position lien on it that was going to take us out of that. We made a lot of money, and if we hadn’t done our research and prepared it, so … Yes, it’s only a small percentage actually have it, but you should do your research and then just price it in. It’s just like when you find out a house needs a new roof, you want to pay $10,000 less for it. If you find out there’s a $10,000 lien on it, you just want to pay $10,000 less from it. You don’t let it stop you from buying the house.

David:
And we show everyone in the book how to do all that research.

Brandon:
Yeah. And so, I want to encourage people at this point, some people who are listening is going, “Oh, I don’t understand this. This is confusing. What’s a lien? How do I do that? I don’t even know to go to the courthouse.” Here’s just the advice I have. I know all four of us talk about this stuff all the time. If things are hard and you just go and stop because they’re hard, you just never achieve any level of success in anything? David Osborn, when you started your fund, you had no idea how to start a fund. It was like, “I don’t know. I’m going to figure it out.” You started asking questions and asking people who know more than you, and reading books on it.
And the same thing, I did it with my fund, and David, you did it when you became a real estate agent. And Aaron, I mean, every step of your journey, that’s what you do. Right? So I just encourage people, don’t listen to us, get confused and say I’m not going to do it. Just start driving forward. Drive through the fog and you can always see a little bit more if you just keep driving. If it’s when you pull over, in the fog is when you stop moving.

David:
Well, the genius of what you said is, the winning formula is just take action. And don't be too terrified. We all have fear, but the people who get to the other side, to the financial freedom, take action in spite of the fear. And even if you do have a lien or a bad experience like I've had before where I lost money on the home, it's usually not a binary outcome. You put down $150,000 in checks. Maybe you get back $140,000. It's not like you're out of the game. You've got a $10,000 less. Does that make sense?
You’re absolutely right, Brandon, don’t get over-scared from what we’re saying. You just got to move forward and take action.

Brandon:
Yeah. It’s all good.

Aaron:
The biggest thing to get from it, too, is the reason that less people buy foreclosures is, they get scared of all that stuff. The goal of our book was to actually say, hey, this process seems scary. There’s less people doing it, but there’s actually a very simple setup. There’s our simple five steps, that will take this process that seems really scary and stops so many people from doing it, and makes it actually very simple. Where you can take that risk and make the risk really, really small compared to the reward.

Brandon:
That’s so good. Okay, I want to actually go through those five steps here in just a second. But before I do, just in case people want to dig in deeper, and/or they want to go buy the digital copy, I know we have physical and digital copies of the book Bidding to Buy. But, before we go into that, let me just mention what the book is real quick, just so people know. It’s called Bidding to Buy: A Step-by-Step Guide to Investing in Real Estate Foreclosures. You can get it by going to biggerpockets.com/auctionbook. Again, biggerpockets.com/auctionbook. I think it’s audiobooks maybe $15, eBooks $15, and you get the physical one for $25.
I would recommend getting what’s called the ultimate edition. You get everything all included, plus a bunch of cool bonus stuff, including a Q&A webinar with you guys, a US map detailing state by state foreclosure laws, worksheets, checklists, templates. All sorts of really cool stuff. So I just want to throw that out there. If anybody’s interested in getting this book, I think you should, it’s one of those, even if you buy one property ever from the lessons you learn in the book, it’s going to pay for itself 100 times over. Pick it up today during this launch period where we have a special pricing. Again, biggerpockets.com/auctionbook.
Anything you guys want to add to that before we move on to the five steps?

Aaron:
No, I think, again, we love foreclosures. We love the auction process, and we love how simple it actually is, but how complicated it appears to everybody else. So the real goal of it was to take it and simplify it, and make it to where anybody can do it. Anybody that wants to invest in real estate can do it. It’s not just an elite thing anymore.

Brandon:
Yeah, so cool. All right, well with that, let’s get to the five steps that you guys outline in the book and how to buy at auction. Step number one, what have you got?

Aaron:
Step number one. And I’m pulling up my phone, too, because at different times, they’re the five steps we always do. Sometimes we shift them in order. The first thing we go into the book is, how to create your list. There’s plenty of states where you could actually just buy the list. You can buy it from a service provider online, where there’s different companies out there. There’s a company called auction.com, and people will say, “Oh, I don’t need to buy a list. I can see it on their website.” Well, they have 25% of them, because they’re actually a trustee.
And there’s another website that might show you some. Or there’s a company like what I talked about at the beginning, like Foreclosure Radar out in California, or [PatAuc 00:48:59] out in Arizona, where you can buy these lists. But you can also go make the list yourself.

Brandon:
Is that what Roddy’s is? I know you own Roddy’s. What is that?

Aaron:
Yeah. Our Roddy company is out in Texas. Foreclosure listing service is flsonline.com. If somebody wants to buy a house at auction in Texas, they can either go make the list themselves. Now, in the book we teach you how to go to the courthouse, get those recorders’ documents, combine it with tax records and things, and make your own spreadsheet. So you can learn how to make your list for free, or you can buy it. If you’re in Texas you can buy it, our Roddy’s list, again, FLS online. Or in other states you can buy the list, but you can also make it.
The reason people buy it instead, is it takes you three or four hours to actually make your list for your county. Or you can go pay $40 and somebody can give you the list. So some people are like, “Hey, my time’s worth more than that. I’m going to go buy the list.”

Brandon:
All right, when you say list, can you explain what that means? It’s just a list of all the foreclosures that are coming up? Is that it?

David:
All the pre-foreclosures, yeah.

Aaron:
Yeah, all the pre-foreclosures. These are all the people that have stopped making their payment and now they’re scheduled for auction. When you see the recorded document at the courthouse, it’s going to say, this person, here’s the legal description, here’s the loan. It doesn’t say what year they were built, how much they’re worth, how many beds and bathrooms there are. It doesn’t even say the address, usually. So you take that document and then you start piecing it together and it’s this treasure hunt to get all the info.
Then you can actually have your spreadsheet or your list because that’s where it’s going to start. You get your list, and then you need something to filter with. Some people only want to buy new houses. Some people only want to buy old houses. Some people want to buy a certain amount. That’s why you have to make your list first.

David:
Yeah, that’s why you buy a list, too. Keep in mind, there are services almost in every major city which will just sell you the list. So instead of just taking a loan number, figuring out the address, figuring out the year built and all the rest of it, that’s what Roddy Report is. There’s more than just us. That’s what Foreclosure Radar is. You just buy the list and then you don’t have to do all that work. It’s all done for you.

Brandon:
That’s cool.

Aaron:
Yup. And it makes it to where you can target it. So now instead of just seeing a recorded document now, it’s actually an address with your thing. You go, all right, so these are the houses that I want to look at. That’s step one. Step one is finding your list and filtering it to go, “Hey, here’s the target of houses scheduled for the next auction.”

Brandon:
Cool. All right. I like it. Get your list together. Then what do you do next?

Aaron:
The step two is the drive-by. This is the thing that I’d say everybody has to do. We recently wrote one of the blog posts on this, because you have to go to the property physically and see it. Even if it’s just from the driveway, you learn a lot of information from driving by the house and looking at it. Now, we’ll also knock on the door. We’ll go talk to neighbors. We’ll try to figure out what we can find on that, but it’s really important to go see the actual property.
I went to an El Paso auction a year or two ago, and everyone there bidding had Google Maps up on their laptops. And so they hadn’t gone and seen any of the properties. They were just looking at Google Maps for the quality … “Oh, the opening bid’s $100,000. Oh, this house looks like a good house.” What they aren’t thinking about is the houses burn down. Houses get knocked down. Somebody that’s occupied and has five cars in the driveway, you’re going to want to pay more than not. The drive-by is actually physically going to the house and finding out everything you can about it. Because you’re going to learn more about the neighborhood, everything.

Brandon:
I’ve told this story before but I’ll say it again, that I once went to an auction. It was a tax sale auction, so all the people that didn’t pay their taxes. And, I just wanted to learn how it did. I didn’t even want to bid anything. I just wanted to learn how it worked. And I remember there was this couple in front of me, a young couple, young 20s, maybe 18, 19, 20, and their grandpa was there. Grandpa was in his probably 60s or 70s. And grandpa was there to buy his kids a house, or his grandkids a house. And so they waited for different things, and I don’t know, halfway through the auction, finally they find this property. And I look it up on the assessor’s page as it’s coming up because I was just doing that, following along, and there’s a picture of a nice-looking very simple house there. And grandpa then bids. I think he got it for, I don’t know, $50,000 or $60,000. And I thought, that’s a really good deal. He got a good deal for his grandkids.
And from the picture on the assessor’s thing, and they were all excited. I mean, hugging grandpa and it was a really emotional time. And then, I went and drove by the property afterwards. I was like, “Man, I think they got a good deal on that one. I want to go see how nice the house is.” And there was no house there. It was burned down. It was gone completely. And I don’t think they realized it. Because the property itself was worth maybe $15,000 for the lot. I mean, it wasn’t in a great area.

David:
Yeah, that’s why you drive by, Brandon.

Brandon:
Yeah. That’s exactly it.

David:
And the risk you run is, you drive by on Tuesday and then the auction’s on Wednesday and it burns down Tuesday night.

Brandon:
Tuesday night, yeah.

David:
But you still bought whatever you bought. The drive-by also tells you whether there are people living in it or not, which is a big deal, because if there’s no one in it, it’s yours. You get to move in, go to work and do it. And if they’re still living there, you got to get them out one way or another. It could be burned on the inside. A friend of mine who owns 350 homes in Denton, Texas, and what he’ll do is, he’ll take the list and if there’s 500 homes on it, he’ll just take the 100 that he’s interested in and he’ll drive by all 100.
What Aaron and I have done in the past as a team, and what we did in our company is, we’d hire retired cops, and just ask them to drive by.

Brandon:
That’s a good idea.

David:
[crosstalk 00:53:51]on the door. And maybe even just knock on the door if they feel up to it, and just say, “Hey, just see whether you can get a pre-foreclosure opportunity.” But at the least, make sure the house is there. Make sure the air conditioner’s there. Is it damaged? Is it spray painted? What’s going on? It’s time consuming but very straightforward.

Brandon:
I love the retired cop thing.

David:
That’s easy to leverage. That’s very easy to get someone else, some hungry real estate investor that could go take some videos and pictures and send it to you. Even someone else on your team can review the pictures and videos. It doesn’t even have to be you, necessarily. But it would be a big mistake to just roll the dice and say, “Well, I hope that that house is still there and that the air conditioner isn’t stolen.”

Brandon:
Yeah.

Aaron:
Yeah. Those scary examples are, again, why most people won’t come to auction. They’ll hear about the house that burnt down. They’ll hear about the stuff that had the six cars. They’ll hear about all that, and they’ll say no. We’re not saying don’t buy … We’re saying that that can easily be mitigated. Very inexpensive. You hire a good person like the retired cops. They go look at the properties, and now that big scary thing … And again, if it’s missing the AC, or it is in bad, you could decide, do I still want to buy this? And if so, I’m just going to make sure I buy it for less.

David:
Suggest your price. That’s exactly right.

Aaron:
Well, and there’s also some wins. And I was thinking this earlier when Brandon asked, I didn’t say it. There are also some amazing wins that happen. You get really lucky. For instance, once there were six condos connected and we bought four of them at foreclosure, just all four. And so we got four foreclosures. And I think we paid $135,000 apiece. We then go out there and find there’s two more connected. They were also in foreclosure but with different banks. And then we found out there was no homeowner’s association. This was in Seattle, or Washington, I guess, just north of Seattle.
Well, then it turns out that you cannot sell the other two without a homeowner’s association document together. You can’t put that document together without our four homes. And so we just called the two banks and say, “Hey, we’re willing to pay you $150,000.” We didn’t gouge them. I mean, we could have been ruthless. We were. We always try to be win/win and fair to move things along. They were probably worth $180,000 at that time. And maybe it was $145,000 we offered, but both banks, once they understood the situation they said yes. They sold them both to us cash for $145,000.
So we ended up getting six and today they’re worth … What are they worth today? $200,000 apiece at least, probably $250,000 apiece. So that’s $1.4 million and we paid way less than that. And that’s an example of a win. Sometimes you get the chips falling in your favor, as well.

Brandon:
Did you get to go make your own HOA? That’s always been a dream of mine.

Aaron:
We haven’t done it. We can. We’re all cash, so we never put leverage on it. I should but we haven’t created the HOA yet.

Brandon:
Who hasn’t fantasized about getting rid of their current HOA and just making their own?

David:
Starting over?

Brandon:
It’s a real estate investor fantasy.

Aaron:
We just haven’t done it because I think it’s like 40 or 50 Gs. It’s not cheap to create an HOA.

Brandon:
I want to be the guy that makes other people’s HOAs. That seems like a dream job. That’s the biggest racket in the world. You just got to get on the right side of it.

David:
Especially if it’s 50 Gs to do it. There are a lot of wins that happen with those drives though. You make talk to the neighbor and they’re like, “Oh yeah, it’s occupied, but those people are moving out this weekend.” Right? They already bought another house.

David:
I thought about that when Dave was talking. It’s kind of like in football where your teammate’s making the tackle and you have the choice where he might get away. I should run over there and help, or I’ll just trust it’s going to go. Well, it’s the players that are always going to the ball that get the fumble when it squirts out, that make the huge plays that help their team win. And by putting yourselves in those situations, talking to the neighbors, asking what’s going on, getting the inside scoop, you will come across these deals. It’s a really, really big component that successful people do, is they put themselves around the ball and good things happen.

David:
It’s actually kind of fun, too. It’s like treasure hunting, in a way. It’s like a treasure hunt. You’re going to look at 50 homes. It’s a treasure hunt.

Brandon:
That’s cool. Well, this would probably be a good time to bring up just the other downside of buying foreclosures at auction is, you don’t typically get inside the property. I mean, if I go buy a property that David Greene here has listed for sale, I schedule an appointment with my agent. I go walk through the property. Pre-foreclosure, I’m talking with the sellers. They bring me into their house. I sit at their kitchen table. I get to look at everything. But that middle one, where I’m buying it at auction, we don’t typically get to go into a property, is that right? And how do you overcome that?

Aaron:
Yeah. You’re just trying to find out as much as you can. And it totally is a treasure hunt. You start with your list of 100, like Dave had said, and so now it’s down to 80 or 90. And then you drive all 80 or 90, and after that, you’re like, “Here’s the 40 winners that we’re going to go after.” And it could be that here’s one that we went to, and it’s occupied and nobody answered. We know nothing about the inside. We’re just not going to do that one. That could be one that comes off the list.
The ways that you mitigate that is the knocking on the door, is the asking the neighbor, “Hey, what do you know?” Neighbors know all sorts of stuff. They know if parties have been happening there every night or not. They know if the people are thinking about moving. It’s also, sometimes you get up there and there’s a for-sale sign in the yard and there are sticky notices all over the front door, so it’s obvious that it’s vacant. And I’d be lying if I said I didn’t peak in some windows. If the yard’s a foot tall.
And I always tell people you want to be sure, if a police officer pulls up, that you’re going to be comfortable explaining what happened. If he says, “Hey, what are you doing back there?” “Well, it’s scheduled for foreclosure next week. I looked at the notices on there, and nobody’s been here. I asked the neighbors. I just wanted to see if there was anything here yet or not.” And you may get in trouble and you may not be, but I tell people, you try to get as much information as you can, but be comfortable and willing to say that. You can see a lot from looking in the windows, see from asking neighbors, from things like that.
You just do your best to mitigate as much as you can. You’re not going to eliminate risk. You’re going to reduce it and then quantify it. If you can see inside and you can see it’s stainless appliances and it’s super nice and really easy to comp, you may tell yourself, I need a lower profit margin on this because it’s low risk. If you can’t see inside, it’s boarded up and it could be gutted inside or it could be great, you’re going to say I need a bid at a higher profit margin because there’s more risk.

Brandon:
That’s smart.

David:
You’re also looking at the major construction pieces. Does the roof look okay? Does the siding look okay? Is there a pool or isn’t there a pool? Is the air conditioner intact? As Aaron said, all you’re doing is notching the property up or down on what you’re willing to bid. And if the roof looks like crap and you figure you got to spend $15,000, $20,000 on the roof, you’re going to have to drop that price a little bit. If the roof looks like they had a hailstorm recently and got a brand new roof, then you get to factor that in, as well.
So that’s why, when we pay people to drive by, we have to pictures of as much as possible. Generally knock on the door as well, see if anyone answers, and if no one does, try to peer through a window.

Brandon:
Yeah. That’s good stuff.

Aaron:
That exterior stuff, too, is a huge dollar amount. If a foundation is sinking and you see it, okay, that’s a $10,000 or $20,000 thing you can see. If the roof is sinking and it not only needs replaced, but, like David’s comment about the major structural; major structural is such a high percentage of what your total cost could be, that even the drive-by quickly from outside, you can see if it needs to be adjusted $10,000 or $20,000.

Brandon:
Yeah. And people don’t typically have a beautiful outside and a disaster inside. Everything generally matches. If the outside looks pretty good, the inside’s probably about the same.

Aaron:
Yeah. Very seldom you see a nicely manicured yard, perfect on the outside but it’s been gutted on the inside.

Brandon:
Yeah.

David:
Right.

Brandon:
All right. We’re moving on to number three. Number one was, get the list. Number two was, drive by. Then what do you do?

Aaron:
Three, is the property analysis part. Now, part of it, you’re learning what you did before. Now you’ve seen the neighborhood, you’ve seen the house, and that analysis says, what can this house sell for? How much construction money is it going to cost me to get it ready? And, how much profit do I want to try to see the actual house?
Now, we go into a lot of stages in the book on how to comp the houses inside that. So we talk about looking at them on Google Maps, seeing if it has a pool, seeing if it backs up to a yard. You guys, I mean, BiggerPockets has so many resources if you’re going to buy a house to flip it. That’s the stuff we’re doing in that analysis part. How much is it going to sell for? What’s the construction going to cost? What’s the sort of profit we want for that?

Brandon:
Cool. All right, number four.

Aaron:
Number four, we spent maybe more time than we needed in the beginning. This was the title review. I think the reason for it is, everybody always talks about that. We go into detail in the book about how people can go to research the title. And you’re trying to do a couple of different things. You’re trying to figure out what position loan is this, and really, if you’re reading our book to get started, I recommend you only buy first position liens. There’s a way to buy second and still make money out of it, but if you’re going to buy it at auction, you buy first position liens only.
So one, you’re trying to make sure it’s a first position lien. And then two, you’re trying to see, are there any other liens that are either going to delay me from selling it, like a federal tax lien, or one that I’m going to have to pay off like the UCC. Just so you add it to your construction. If you were going to spend $10,000 in construction and now you’ve got a $5,000 UCC lien, you’re going to act like you have $15,000 to spend for construction.
Step four is the title review. Make sure you’re buying at first. It’s also checking property taxes. Property taxes are a really easy thing to check. Do they owe money on their property taxes or not? And it’s very common for a pre-foreclosure, foreclosure, to also have a year of back property taxes. It takes you 10 seconds to check. This county, do they owe taxes or not? That’s part of that title review.

Brandon:
Hey, just a quick tip that I did on my first foreclosure I ever bought. A similar story of showing up at the auction, having no idea what I was doing. Not a single other person showed up. I was the only one there. I bid a penny over, but similar. But what I then did is … Well, before that, I had to do the title review, and I didn’t know what I was doing there with the title. I didn’t really know. But, I’d bought a number of properties in my area, so I simply called up my favorite title company employee that I’d worked with a number of times, and just said, “Hey, I’m new at this. I want to buy this property.” And they called me back an hour later, “Yeah, I did a little bit of research. I looked into this and this and it seems fine for here. Here’s what I found.”
Anyway, just to throw it out there. If you are an experienced investor, you just haven’t done auctions but you’ve worked with title companies or attorneys a lot, just your relationship with them might get you pretty far through that title review.

David:
Great point.

Aaron:
Yeah. I think that’s a lot of what David has been able to do when he jumped into that.

David:
Yeah. The whole comes in there. It’s the same thing on valuation. Very commonly, we’ll just look with a Google search what’s for sale near there, call the realtor that’s got it sold and say, “Hey, I’m thinking of selling my house, which is this address. What do you think it’s worth roughly? It’s 1,500 square feet. I don’t want an official BPO. What’s it worth?” And they’ll tell you over the phone, “Well, I think that house is worth this.” Or sometimes, they’ll go, “Oh, that’s Johnny. He’s in a lot of trouble. You guys buying that from foreclosure?” Or sometimes they’ll say, “You’re the eighth guy that’s called me.” But either way, using people and having a great team and people that you support and that support you is … If you do see a foundation issue or a bad roof and you’ve got a good relationship with a roofer, you can always send your buddy the roofer out, say, “What would this roof cost?”
Now, you want to not overkill the list, because you’re going to end up with, as Aaron said, 40 homes maybe, but only 10 or 15 of them will go to auction. Because what happens is, a good number of people cure their auction right before it happens so they don’t actually get foreclosed on. But yeah, use your title company buddy, use your realtor buddy, use your construction buddies. And there’s a lot of resources you can use that don’t cost you any money to get you better info.

Brandon:
That’s so good. So good.

Aaron:
And it’s a great point to add on there, that one of the things that gets people the most discouraged, is they spend hours on one property. They fall in love with that property. And we say this is like fishing instead of hunting. You just got to be fishing all day, and if you fish all day, you’re going to catch one of the fish. You can’t look down and go, “I want that fish.” If you see 10 fish in the pond, you can’t chase one fish because there’s a decent chance that other nine you could have caught. Yeah, you got to have a wide net. You spend a few hours on ones and they’re the ones that cure it. People are like, “Oh, this sucks.” So yeah, cast a big net.

Brandon:
That’s such a good point. I mean, that’s just true in real estate in general. No matter whether you’re doing auctions or whether you’re doing, I mean, anything. People get so focused on the deal rather than the process, or rather than the funnel, as I like to talk about on the show here. What’s your lead source that’s going to bring you 20 leads a week, that you can then analyze and then make offers every single week consistently? Instead of, “I’m going to go find that house over there. I’m going to go buy that one.” And then it doesn’t work out and you get discouraged and you give up. Because they’re focused on the wrong thing. They’re focused on a deal, not the system.

Aaron:
Never fall in love with something that doesn’t love you back, is one of my favorite quotes of all time. Don’t fall in love with a house, a deal, anything. There’s always another deal, there’s always another house. Just keep fishing.

Brandon:
Yeah.

David:
Fish don’t love, so don’t love them.

David:
Yeah. They taste good, though.

Brandon:
All right, number five. What’s the fifth step in the process?

Aaron:
The fifth step is the most fun part. It’s actually going to auction. If you guys are thinking about getting involved in foreclosure auctions, go to a foreclosure auction and go watch it. It is fascinating. And if it’s in Texas, it’s going to be at the courthouse on the first Tuesday of every month. If it’s in California, it’s every day. I think if it’s in Colorado, it’s once a week.
But you want to go when it’s also busy. There’s a couple of websites out there like auction.com. They have 20% of the postings anywhere. So if you live somewhere, go there. You’ll get to see when the most popular auction day is. Go and watch it. It’s fascinating. People are listening to headsets. There’s bidders coming out. The auctioneers, some of them are trying to sell it for a lot. Some of them are trying to sneak in and out. It is the most bizarre thing.
You show up at auction day, and in most states, you have to pay 100% of the funds in cashier’s checks that day. If it’s a $300,000 house, you need to give them at least $300,000 in cashier’s checks that day that you’re going to sign over. And you use it like a wallet. You don’t just bring a $300,000 cashier’s check, because what if you get the house for $250,000 and you’re waiting for that balance? So you bring some $100,000 checks, some $50,000 checks, some $20,000 checks. We’ve got a lot of members at Roddy’s, when they first sign up they’re, “Wait. We all have to bring … That means there’s like $50 million in checks at that auction.” You’re like, “Yes, that’s exactly right.” It’s a baffling, strangely archaic method, but it is still handing somebody checks.
In Arizona, I think you only pay either $10,000 or 10% the day of auction and the next day you wire the balance. There’s some states where you can wire the funds. Most nonjudicial states, though, it’s checks at the time of auction. When you show up at auction, you’ve got your list. You have your list of how much you’re going to pay and that’s really, really important, because people really like winning. And so, if you don’t know that your max bid is $100,000 for this house, and you start bidding against somebody else, there’s a decent chance that you just want to win. And so I’ve seen people plan to pay $100,000 and pay $120,000. They just don’t want to go home empty handed.
You want to have your list. If it’s your first one, bring a friend with you, and tell your friend, “Don’t let me pay more than what’s on this list.” Because it’s an exciting, fun, fascinating thing and it’s really easy to get caught up in that moment. So you want to show up with your list of houses and your cashier’s checks and be ready to go.

Brandon:
Yeah. In Hawaii, I bought actually two foreclosure condos this year. I got great deals on both of them, and I guess they both came from the exact thing we’re talking about today. So it does work. A big shout-out to my partner Greg for that, because Greg is awesome and he helps us work through that.
But, we in Hawaii, I think it’s 30 days. You put 10% down day of auction in cashier’s checks, and then you have 30 days to get the deal. But you can actually lose money when you get bank financing on foreclosures here.

Aaron:
Wow.

Brandon:
Which I don’t know any other state that does that.

Aaron:
I got to remember that.

Brandon:
Yeah. 10% down day of, and then you have 30 days to close.

David:
The one time that Hawaiian time works out in your favor.

Brandon:
Exactly. That’s the one, yeah. It is because of Hawaiian time.

Aaron:
Actually, they’re like, “Nobody’s going to bring enough money on the [crosstalk 01:08:40].”

Brandon:
No, it’s better than that.

David:
No one at the auction even pays attention to what’s going on for the first two weeks.

Brandon:
It’s actually better than that. I said 30 days. I think that’s minimum. So actually, what the rule is, it’s minimum 30 days, or whenever … I bet the legal thing says this, whenever the Hawaiians get around to it. That’s pretty much how it goes. You don’t know.

David:
Contingent on surf conditions, basically. It’s the surf contingency. Yeah.

Brandon:
Contingent on surf, yes. Exactly. There’s a surf contingency. We waited for what, four months for one of ours to close. And they just keep your 10% at however long they want to. And some day they will file the paperwork and get it to you. And if you know somebody in the county, your brother, cousins in there, you can maybe get it done quicker. It’s the weirdest thing.

David:
That’s crazy.

Aaron:
Your partner Greg is pretty brilliant, too. I know one of those deals, there was a title issue. I was talking to him about it. He was able to find the prior owner and actually get her to give him a copy of the payoff on the second [crosstalk 01:09:31].

Brandon:
Yeah, he’s legit.

Aaron:
He had a few weeks, and he made sure that he went … I think you got it for a deal, because everybody else was totally scared of that title issue. But he solved it ahead of time and you guys got it.

Brandon:
I think that was a deal where we actually … Yeah, I won’t go too in depth, but I think it was seven days from the time we closed to the time we flipped it, and we had it sold. It was seven days’ total that we owned that property for, nine days, was insane. Because we did all this work upfront, lined up everything, so day one we were in there. And that’s actually the nice thing about that time. We already knew we owned it. We owned it. We just couldn’t take possession.

David:
No, that’s better.

Brandon:
Yeah. We had all the time to plan. It was awesome.

David:
That’s awesome. Maybe we should go by Hawaii after this. [crosstalk 01:10:10].

Aaron:
David and I are ready to partner with you guys on your next foreclosure out there. We are in.

Brandon:
Yeah. It is a weird market.

David:
The other thing you should know, is when you go to the courthouse step, there’s all these regulars there. There’s a bunch of guys, like Aaron said earlier, that go all the time. This is all they do. And they’re not friendly. They’re not trying to give you their secrets. They’re trying to brush you away. And there’s usually five or six of them, or more, and they just, that’s it. Those are the men, and they usually have hundreds of properties. Ignore them, they won’t be nice to you. Don’t be discouraged by them. Just stick with your game plan.
And don’t get caught in a bidding war, either, because I have a friend who went for the first time, and his limit was $125,000. He went all the way up to $145,000 and he got the right to rehab and flip a property for minus $1,000. Whatever your number is, you got to stay at that number, and if someone else bids above it, you let them have it.
And the other thing you can do, people need to know this, either. You can’t go to those other four regular bidders and say, “Hey, don’t bid on this one, and I won’t bid on the next one.” Because that will put you in jail. That’s illegal. And there was some of that going on. There was a group, I think in Oakland, that had little hand signals of who would bid and who wouldn’t bid.

Brandon:
Really?

David:
And, they busted them all, and a couple of them went to jail.

David:
So that’s not an auction rule? That’s an actual state or federal law?

David:
Yeah. It’s cartel or collusion. Yeah, it’s a federal law. It’s against the law.

Aaron:
In theory, you’re stealing from the owner. You’re defrauding the bank and the previous owner. It’s supposed to sell for what the market would bear.

David:
That’s very good to know, because if these things are as competitive as you’re saying, and you go in there and do something stupid like that, you can be sure everybody’s going to say, “Really? Say that again,” and they’ll go turn you in.

Brandon:
Yeah.

Aaron:
Yeah. I was working through a group in somewhere else, Chicago or something, and I’m on the phone with this guy and he found me a few deals, and I wanted to buy more with him. So he was representing me and he said, on the phone with a banker, he said, “Hey, by the way, and if this isn’t the purchase price I need $5,000 extra.” I said, “What’s that for?” He goes, “I got to pay off the other guys not to bid.” I’m like, “Are you kidding me?”

Brandon:
Oh. Yeah, no.

Aaron:
I said, “I’m out of this conversation. Never call me again. I know you’ve done well for me, but up to this point, we can never do business again.” And we never did. It was the most ironic thing, that he must have just not known it was illegal, to say it in front of a banker. The banker must have not known it was illegal, but I’m not going to do that.

David:
Every once in a while as a cop, you do see someone that comes up and completely incriminates themselves, having no idea that what they’re saying is wildly illegal. And you look at them …

Aaron:
It probably seems logical to them. Yeah, it’s logical. We pay them not to bid and they pay us not to bid. It’s all fine.

Brandon:
Sorry I was jaywalking. All this meth in my pockets was slowing me down. [crosstalk 01:12:39].

David:
I didn’t want to wait for the crosswalk to go to the little man walking, because I’m high and time speeds up when I’m on there. If you guys want to listen to Greg’s story, we actually had him on the BiggerPockets Podcast. It’s episode 385. That’s the realtor that Brandon uses.

Brandon:
Agent that I … Or, not even realtor, just partner. Yeah, he’s awesome, Greg. All right, well with that said, we got to start wrapping this thing up. This has been phenomenal. We’ll go Famous Four here in just a second, but I’m curious, do you have any final words of advice for people who are, “I’m going to do it, I’m going to go and try to master the foreclosure game to get some good deals because it’s kind of hard to find in my market right now?” What would you-

David:
My advice is always the same, and I want Aaron to finish, because he’s so much more knowledgeable. I’ve done a lot but he’s done masses. First off, I’m the poster boy for success in this space, because if I can do it, anybody can do it. Second off, it’s so cool to buy homes at auction. The guys that I know that have built a bunch of wealth buying homes at auction are not MBAs from Harvard. They’re not the guys that are going to design the next iPhone. They’re just regular people, with a little savvy, a little moxie, and a lot of persistence and tenacity. And so, just feel hopeful. I believe there’s going to be a ton of foreclosures coming up in the future. Whenever there’s economic pain, there’s foreclosures. And you should just be prepared, take action, have a game plan, follow the five steps, and use the resources of BiggerPockets to get out there and start building your wealth through foreclosures.

Brandon:
Awesome.

Aaron:
Yeah. And if I was adding to that, it is, there’s nothing like it. Buying houses at auction, it is that rush of strategic gambling and making sure you do your homework on it. That’s very fast paced. You make an offer on MLS for a house that you’re hoping to have be a flip, you might hear back in a few days, in five days, in 10 days. This is instantaneous. You get instant feedback. You get the instant rush, the instant reward. When you unlock that door for the first time, it’s an instant, “Yes, we got a great house.” Or, “Oh, man, we paid too much for this thing.”
It is a very fast paced version of real estate, which we all love. A couple of little tips about it. We had a member sign up three months ago, getting our list out in Texas, and he was just focusing on pre-foreclosures. So he was going out and door knocking and door knocking. And then he sent us an email the day before yesterday and he said, “Hey, I just closed my first assignment deal. I just made $10,000 on it and I wanted you guys to know.” We had done some coaching calls with him. He had invested $700 for leads, went and door knocked. Made $10,000 three months later, by door knocking, making a deal with somebody and selling at somebody else. Talk about win/win/win. The owner gets to keep some of their equity. The guy that meets them gets some of it, and then a different investor got to buy it from him. So winners are made in it every day.
The other caveat to it, I bought a house my very first time in auction and then it took me weeks and weeks to figure out the system, and weeks and weeks of pain and heartache, of falling in love with a house and missing it. With auction, and maybe real estate and life, I say you have to fall in the love with the problem. It’s really easy for people to go, “Man, I drove all 100 of these houses and only 10 of them went to sale. That sucks.” If someone’s only driving 10, there’s a chance that all 10 of them don’t go to sale, and it gets discouraging. You have to fall in love with the problem and you have to say, “If this was easy, everybody would do it.” And think of the problem as, that’s how it gets narrowed down. That’s why my system is going to work and the people that aren’t following my system aren’t going to win. You have to fall in love with the problem because it’s also going to discourage other people. It keeps people out of bidding.
Anytime it’s hard to do it, there’s less competition. Anytime there’s less competition, you’re going to get a better deal. Anytime there’s problems, as long as you have the solution to it, you can make a lot of money and have a ton of fun.

David:
Amen.

Brandon:
Mic drop right there. That’s great. All right, let’s move on to the last segment of the show. It’s our …

Speaker 6:
Famous Four.

Brandon:
All right, it’s time for our Famous Four. The same four questions we ask every guest every week. And you guys have been on the show before, I know, so you may have given your answers. Maybe they’ve changed, maybe not. But before we ask you these four questions, let’s hear what’s going on around the BiggerPockets Podcast network this week.

Speaker 7:
This week on the BiggerPockets Money Podcast, Scott and I sat down with Farnoosh Torabi from So Money. Farnoosh shared how she turned financial mistakes in college into a career teaching people how to better manage their own finances. She also talks about the tips she used to get herself out of debt, and how she negotiated a huge raise whenever she changed jobs. It is a fantastic episode.
Okay, Brandon and David, now it’s back to the Famous Four.

Brandon:
All right. Make sure you guys check out some of the shows in the BiggerPockets Podcast Network, the business show, obviously our real estate show, the new rookie show, the-

David:
Money Show.

Brandon:
… the Money Show. I was going to say the Finance Show. The finance show called BP Money. All good stuff. And of course, Aaron, what’s the podcast? I know we’re going to give you a chance to tell you about it in a second. Real Estate Rockstars, Right?

Aaron:
The Real Estate Rockstars Podcast. We just want to be like your little brother, focused on real estate [crosstalk 01:17:33].

Brandon:
We like it. We like it. All right. Now, let’s get to the Famous Four. Question number one; what’s your current favorite or notable real estate related book?

David:
That would be Bidding to Buy. [crosstalk 01:17:47]. Just recently put out by Aaron Amuchastegui and David Osborn.

Brandon:
There you go. All right, everybody think.

Aaron:
Man. It’s going to be Rich Dad Poor Dad, forever. Even though it changed its trajectory and I guess I just like to think about all the old stuff. I’ve read plenty of great books since then. BiggerPockets puts out a bunch, David’s Wealth Can’t Wait. There’s a lot of fun ones out there.

David:
What about BRRRR? BRRRR?

Brandon:
BRRRR.

David:
That’s a good one. BRRRR.

David:
BRRRR.

Brandon:
That is a good one.

Aaron:
BRRRR is everybody’s favorite. But yeah, but always back to Robert Kiyosaki, Rich Dad Poor Dad, changed my life, for sure.

Brandon:
Awesome.

David:
All right. How about your favorite business books?

Aaron:
Yeah, that’s a great question. The E-Myth is probably one that I was just thinking about the other day. And early in my career, that one was phenomenal. EOS and Traction are similar, but, The E-Myth was a phenomenal book for me early on.

David:
Can you share how E-Myth shaped your philosophy on-

Aaron:
Yeah, so liberating, man, because a lot of us that are entrepreneurs are hardworking and we want to make stuff happening. We live in this vision all the time. We’re always trying to move, but we have this problem of starting more stuff than we can ever can keep up with. And the concept of the E-Myth is, there’s technicians, managers, and entrepreneurs. Probably today we call them visionaries and integrators in those other books. But most of us are visionaries so we’re running around creating stuff like crazy, and no one is following through and filling up all the details and that’s where your technicians and your managers follow up behind you. And if you don’t have those guys on your team, you’re going to be in constant chaos and constant pain. And if you have great integrators or great technicians and managers, you can build a massive empire because there are people coming up behind you that got your back. And take care of all the nitty gritty details that visionary entrepreneurs tend to let fall through the cracks.

David:
Awesome.

Brandon:
That’s probably the best short description of the E-Myth I’ve ever heard. That needs to be an Instagram clip right there. Anyway, that’s awesome.

Aaron:
Yeah. I need to go read that one again. The 4-Hour Workweek changed the way that I looked at work. You should always be trying to accomplish something when you work. You’d be going to the office for eight to 10 hours and it was the whole lifestyle of it. You’d have moments of working and moments of breaking, and moments of socializing. The first time I read 4-Hour Workweek, it changed the way that I thought about work and productivity and focus in the workplace. And so I think that’s a great one.

David:
Did it change the way that you looked at homeschool education, as well?

Aaron:
Absolutely. If we get to plug our 5-Hour School Week book, when we came up with that for homeschooling, which now it’s like we came out with that a few years early because that has absolutely blown up through COVID. It’s the same thing. When you focus on stuff, you get more work done. And when you try to get stuff done really quickly, you can. It works in business, it works in education, it works in all sorts of stuff.

David:
The hard thing, Aaron’s my business partner and now there’s only four hours a week when I can actually catch him working. He’s a great partner. I’m very proud, and he does amazing work, but I have to make sure it’s in that four-hour window and I’m never sure where that is, exactly.

Aaron:
The funny thing is, when I first did The 4-Hour Workweek, it really was that. Now it’s just, I feel like I’m getting 180 hours worth of work done every week in my 40 hours. We’re working around the clock right now but we’re way [inaudible 01:20:57].

David:
I have the same problem with Brandon. He’s four hours a week on any form of technology. He doesn’t answer his phone. I have to write him letters, send smoke signals to check.

Brandon:
That’s Hawaii time.

David:
Trying to get a carrier pigeon. They can make it all the way to Hawaii.

Brandon:
It is Hawaii time.

David:
Yeah. None of them have made it so far.

Brandon:
Well, I just got out of quarantine. I had 14 days of quarantine. I couldn’t leave my house. So I am not going to be home anymore, because I don’t want to be in my house anymore. It’s wonderful to be out in the real world. All right guys, my-

David:
All right, next question.

Brandon:
Oh, next one’s yours.

David:
Yeah. Next question; what are some of your hobbies?

Aaron:
Not as good at golf. Yeah, I was going to say golf, but David has almost always beat me at it. But it is my most fun challenge to go try to [crosstalk 01:21:35].

David:
This morning, I was on the fourth hole with my wife. We play early and fast in Colorado where we’re at. And two black bears, two cubs, mid-sized cubs, were frolicking around in the fairway and wrestling and play fighting with each other. It was the most magical thing. I bogeyed the hole, though, so I was disappointed.

Brandon:
Please tell me you went and picked up the bears, and was posing selfie style with them.

David:
Well, they’re bigger than me. I did video it. I’ll send you the video right after. It’s cool.

Brandon:
I would like to see it, yeah.

David:
But what’s funny is, I ran back to my cart to get my phone and the one bear started running after me. Because they say never run from a bear. And so my wife pointed that out to me. I grabbed the phone and ran back towards it, and of course, as soon as I moved towards it, it stopped chasing me and then thought better of it. For a moment there, I thought running to my cart wasn’t the brightest idea. But yeah, they were bigger than me. They were just still young. It was fun. It was a great day, magical.

Aaron:
Dude, that is crazy. That does not happen every day when you’re golfing.

David:
Golf and triathlon training are my only two hobbies.

Brandon:
Yeah, Dave, I don’t think I mentioned that, but back when I ran my half-Ironman, so Aaron and I actually did it together, and we ran the last, what? Five miles? I don’t know what it was, 10 miles together and it was so much better than doing it alone. I appreciate you teaching me how to swim, and bike and run. [crosstalk 01:22:46].

Aaron:
He invited me, too, Brandon. I was like, “Yeah, I’ll do it.” Then he sent me the training schedule and I said, “No, I won’t.”

Brandon:
No, I won’t.

Aaron:
Yeah, David was supposed to be doing that one with us. What Brandon really taught me with that one was, humility. Because I had trained really, really hard and I was teaching Brandon to swim. We came out to Hawaii early and bike and everything. And his very first one, he beats me. He’s got a quicker time than me on it. He actually started after me, even though we finished together. And if he hadn’t caught me, I would have had a slower time, because I was getting lazy at the end and wanting to walk a little bit. And he got up behind me, was like-

David:
And Brandon trained for eight weeks, right? And he’s the most unathletic … You’re a freak of nature, Brandon. It makes no sense at all.

Aaron:
Brandon is a freak. I went into that saying, “I hope Brandon finishes today. I’m not feeling very confident for him.” And he beat me. He totally wiped the floor with me. I was super impressed. He has-

Brandon:
I think you were just nice and waiting for me.

Aaron:
… epic athletic ability.

Brandon:
You were waiting for me because you knew how lonely I was.

David:
Did it feel like you lost to one of those dancing balloon men that the car dealerships put out in front of the-

Brandon:
The wacky inflatable arm man? Yeah.

Aaron:
That’s exactly right.

Brandon:
[crosstalk 01:23:52].

Aaron:
He ran a triathlon with one of those. It was a strange feeling. I mean, I was praying the whole time that Brandon finished, and then when he caught up and beat me I was like, “Hah.” I was praying too hard [crosstalk 01:24:04].

David:
And you know what? He probably made you feel good the whole time. That’s why we all love Brandon.

Aaron:
It was awesome. It was a ton of fun.

Brandon:
All right, let’s move on. All right, it was a ton of fun, so thank you. All right, last question of the day; what do you each believe sets apart successful real estate investors from everyone else, who give up or they fail or they just never get started in the first place?

Aaron:
I would jump and say, that’s what I said before, the falling in love with the problem part. I do not do good with competing against big groups of people. I like to find the loophole. I like to find the niche. I like to find the way where there’s going to be the least amount of people competing against me. And then it’s the concept of fishing. It’s not a short-term gain. This is the long game. It is cast a big net and, you write a ton of offers, you’ll get one. If you go after a bunch of houses, you’ll get one.
If you knock on a whole bunch of doors like David Greene did, you’ll get 99 people that pull guns on you. You’ll get one person that you get the deal with. It is, you fall in love with the problem, and you play that long game. It’s like fishing, not hunting.

David:
And that’s great, and I’ll piggyback on top and just say persistence and tenacity. I think that’s the number one trait to develop. My mom and dad bought three properties when I was in high school and they had a partner with them. It was through the ’80s crash. The partner flaked out, bailed out, couldn’t make the payments, so my folks ended up with these three homes they bought for $60,000 apiece. They were in crack alley and just terrible parts of town. But they never quit. They held them together. They kept them rented. They survived. It might have taken a long time, because they bought at the worst possible time, but 20 years later, they sold them for $120,000 apiece. Kept one.
They still have one. It’s probably worth $250,000. And it was only because, unlike their partner, who fell by the wayside and broke and couldn’t hang in there, my folks, who didn’t do much more real estate, but that was their exposure to it, they just hung in there. They made it work. They made the payments. They fixed up stuff themselves. They used their hammers and saws. They cleaned up after their own tenants. And 20 years later, they doubled the value of the equity they had put in that home and kept one still that’s worth $250,000. So persistence, tenacity, and just not quitting.
Right now, I have a property I bought that we’re over in. We’ve overpaid for it and it overdeveloped. I have a partner. It was the partner’s fault, not mine, but responsibility’s important, too. But we’re going to hang in onto that property and we’re going to rent it. It’s in a good location, so I know in 10 years we’ll be made whole again, and it is going to cash flow barely for the interim 10 years. And really, I’m doing that for him. I’d sell it and cut my losses, but we’ll work it out together. If you can hang in long enough and be persistent and tenacious, you’ll always win.

Brandon:
Real estate is such a forgiving asset class. We say that a lot.

Aaron:
It is. And if you’re patient enough, absolutely.

Brandon:
Yeah.

David:
Fed keeps printing this money.

Aaron:
Don’t wait to buy real estate. Buy real estate and wait.

Brandon:
There you go, man.

David:
It’s awesome. All right, this has been fantastic, guys. Can you tell us where people can find out more about each of you?

David:
Colorado, you can come and meet bears. No, David Osborn. Iamdavidosborn.com is my Instagram, and davidosborn.com is my website.

Aaron:
I have to say thanks again, you guys. This has been absolutely fun. You are my three favorite people in the world just to chat with. Our short podcast interview went long, but hopefully we got to provide a lot of value as we got to just talk and have fun together and share secrets.
Instagram is the best way right now, so it’s aaronamuschastegui, so @aaronamuchastegui. On there, I’ve got a link to all of our foreclosure resources and all sorts of other ways. And message me on there, and I’ll message you back. And, it’s been great.

Brandon:
Awesome, guys. We’ll put links to all that stuff in the show notes, of course, biggerpockets.com/show396. I’ll have it all right there, and I think that’s all I got. Thank you guys, for joining us today. And you guys are two people I look up to in the real estate space, and just in the fatherhood space and in the entrepreneurship space, and every space there is, a ton. Thank you guys, for coming on the show today.

David:
Thank you, Brandon. Thank you, David. You guys are awesome. And Aaron, I love you, brother.

Aaron:
Thanks, guys. This is great.

David:
Thank you both.

David:
Adios.

David:
This is David Greene for Brandon, the triathlete freak, Turner, signing off.

Speaker 2:
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In This Episode We Cover:

  • The impact of COVID-19 on various assets
  • Why David Osborn is keeping a heavy cash position
  • How the foreclosure process works (notice, etc.)
  • What a foreclosure auction (sometimes called a “trustee sale”) is
  • The 5 Steps to buying at auction
  • Why it’s so important to drive by every property you plan to buy
  • Aaron’s first auction experience as a newbie
  • How to deal with a lien on a property
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with David:

Connect with Aaron:

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investo...
Read more
    Julie Marquez Investor from Seattle, WA
    Replied 28 days ago
    Great show! I'd had almost forgotten about foreclosure auctions, so it was nice to get a refresher. What were the other show number's that these guests were on?
    Thomas Garza Homeowner from Channelview, TX
    Replied 23 days ago
    I'm getting the impression that the comment section isn't monitored...
    Thomas Garza Homeowner from Channelview, TX
    Replied 25 days ago
    How does the audiobook work? Do I receive a downloadable file? If I wait a little while, will the audiobook be available on audible?
    Anastasia Grahn
    Replied 11 days ago
    What is the company he mentions for Arizona? The transcript isn't clear either. Thanks!