If you’re a new real estate investor, or even if you’re just new to foreclosures, it’s easy to get overwhelmed with everything that goes into buying property at auction. After all, there’s a lot to know and a lot of risk involved.
But when you do know what you’re doing, bidding on foreclosures is much less risky, and the potential rewards, in my opinion (and experience), outweigh the inherent risks.
Still, I’m not saying you should jump in with a trial-by-fire approach to learning the trade. At some point, you’ll need to bid in order to become a skilled foreclosure investor, but there are several risk-free ways to start gaining competence.
And before you start feeling like you’ll never catch up with seasoned investors, know that everyone was a beginner at some point. I felt completely outmatched at my first few auctions, but I still managed to make some great purchases. Even now, after buying and selling over 1,000 homes at auction, I’m constantly learning and improving as an investor.
As with any new endeavor, you can’t let fear or doubt paralyze you. The only way you’ll ever progress is by taking action, but you need to take slow, steady steps toward the goal. Sprinting toward that first foreclosure purchase is going to burn you out and could easily burn through your funds.
With that in mind, here are four risk-free ways to start learning the tools of the foreclosure trade. You can try them all without worry, and I guarantee they’ll help you overcome those feelings of self-doubt and uncertainty.
1. Learn about the foreclosure process
You’d be surprised how many people set their sights on one property scheduled for sale only to find that it’s never actually put up for auction.
It’s always a good idea to learn about the foreclosure process so that you aren’t caught off guard by the often complex path homes take toward auction. Better yet, learn about the process of buying foreclosures at auction.
Bidding to Buy, the book I co-authored with real estate legend David Osborn, outlines each step we take toward buying distressed properties on the courthouse steps. It’s now available for pre-order on the BiggerPockets Bookstore.
Plus, when you buy the book, you’ll get access to the same resources we rely on every step of the way, including spreadsheets, agreements, and checklists.
2. Price your home
Everyone is curious about the value of their home, but people usually like to imagine selling it for the highest price possible.
For this exercise, I want you to do something different. Visit real estate data sites like Realtor.com and Zillow to pull some quick value estimates. After that, think about where you’d have to cap your bid on the property in order to turn a profit at resale.
Don’t forget to factor in Realtor commissions and repair costs.
3. Price other properties
Pricing your own home is a lot easier than pricing other properties. After all, you know its general condition, improvements, and repair requirements.
Unfortunately, this type of information will not be available for most foreclosures. If you do find it, you can’t really trust it as condition can change drastically between a property’s last sale and foreclosure.
Having said that, take a stab at valuing a couple properties that have recently sold. Do this before looking at sale figures. Then, go back and see how close your estimates came to what the properties actually sold for.
This exercise will help you gain competence with estimating property values. It’s a critical skill for any real estate investor, and it’s absolutely vital when it comes to buying foreclosures at auction.
4. Attend a foreclosure auction
Finally, why not attend an actual foreclosure auction? It’s free, it’s fun, and there’s no purchase necessary.
Besides, attending an auction without the intention to buy is a great way to get a feel for how they’re run. If you’re not worried about bidding, it’s much easier to take in the experience. When the day to place your first bid finally comes, you’ll have much more confidence and can focus on securing a great deal instead of trying to figure out what’s happening around you.
There you go: four risk-free ways to start learning the ropes. You can take them on whenever you want without worry.
But never forget: risk and reward are conjoined twins. A time will come when being comfortable and safe won’t take you any further. When it does, you’ll need to head out into the big, brave world of The Real Thing.
For now, though, just begin. Take a baby step. And really—go to a foreclosure auction. There’s nothing else like it, and it really is fun!
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