Buying & Selling Houses

Buying Foreclosures at Auction: 4 Risk-Free Ways to Learn the Ropes

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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.

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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.

Related: Don’t Skip This Step When Buying Foreclosures at Auction

couple on laptop, on holding gavel, online auction concept

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.

Related: Rapid Spike in Foreclosures Right Around the Corner

euphoric man motioning that he's won while and watching a tablet in a coffee shop terrace of a port of urbanization with the sea in the background

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!

Questions? Comments? 

Join the discussion below. 

Aaron Amuchastegui has been a full-time real estate investor for over 10 years. In that time, he’s purchased over 1,500 homes at auction and has bought and sold three apartment complexes. He curren...
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    Jesus Lopez Jr from Goodyear, AZ
    Replied about 1 month ago
    Thanks for the post. Just recently got interest in auction sales. Only problem I see for myself is not having the capital to actually buy something at auction. I’ve googled trying to purchase foreclosures with hard money, but unable to get a clear answer. What are some other options as far as financing when buying at auction? Thanks again!
    Aaron Amuchastegui Investor from Austin, TX
    Replied about 1 month ago
    In Arizona, there are a few hard money lenders that can help. Something unique about Arizona is you only need to pay a portion of the purchase price the day of the sale $10,000 or 10% or similar, and the rest can be wired the following day. If you go attend an auction for a few days, you can probably ask around or might even see a lender with a booth set up there if you go on a busy day. Check auction.com for their live schedule and go on a day when they have a lot of properties
    Keith Gehring from Waukee, Iowa
    Replied about 1 month ago
    Be aware of tax and mechanic’s leins. I am sure that will be fully vetted in the book.....but only listing 4 items might be misleading to people with no experience or just starting out.
    Aaron Amuchastegui Investor from Austin, TX
    Replied about 1 month ago
    Hey Keith! Absolutely you are totally right. Our other blogs go into the 5 steps to actually buy, including doing title, driving houses etc. This article was meant to be a fun example for someone to start experiencing the process, without risking any money or buying anything just to see if they might enjoy learning more :)
    Michelle Smith from Folsom, CA
    Replied about 1 month ago
    Hey Aaron, I've already pre-ordered your book and am waiting in anticipation! :)
    Aaron Amuchastegui Investor from Austin, TX
    Replied about 1 month ago
    Awesome!! I hope you love it and will be happy to answer any follow up questions!