Don’t Skip This Step When Buying Foreclosures at Auction
At a recent auction in El Paso, Texas, I noticed many bidders pulling property information from the internet as trustees called out addresses. Many of them used Google Street View to look at homes as they were auctioned off.
More likely than not, this was the first time these eager investors saw the properties—and they were bidding regardless!
Warning: Objects on Google Are Different Than They Appear
I understand why someone might opt to do this. After all, loading street images from Google Maps or Google Earth takes less than a minute. Driving out for an in-person inspection takes significantly longer, especially for those buying properties outside of their home county.
But I also know that these time-saving shortcuts can be costly.
While glancing over the shoulder of one bidder that day, I recognized the home he was viewing via Google Maps; it was a property my team had driven by every month for nearly a year. As you may know, the foreclosure process can be delayed for any number of reasons. This particular home's auction had been delayed month after month. Still, we stuck to our process and continued to include it in our rotation of drive-by inspections.
Most months, this home looked more or less the same. During our most recent inspection, however, the home didn’t look like much at all: It had been demolished.
Here that home is, with an image captured from Google Street View next to a more recent photo taken by a member of our team:
If you—like many of the bidders at that auction in El Paso—rely on old, easily accessible online information as your sole source of property data, you’re taking a big risk when you bid. While the above example is a bit extreme, it illustrates why buying properties sight unseen at auction is a bad practice.
Dig Deeper Than the Competition
Drive-by inspections aren’t just for mitigating risk; they’re also an essential tool for gaining an edge over the competition at auction.
Unlike the bidders described in the section above, experienced investors typically do their due diligence and price their bids at auction accordingly. However, if you're willing to dig a bit deeper than most, you'll find opportunities that others may miss.
I found one such opportunity a few years back in North Sacramento.
The property was in a high-end area and would be an easy flip if we could get it for the right price. Since the home wasn’t far from where I lived at the time, I decided to do the drive-by inspection myself.
When I got there, I found that the home looked just as good as the others on the block—at least on the outside. Instead of simply snapping a few photos and driving away, I decided to investigate further. After knocking and waiting for a few moments with no answer, I walked over to a window and peeked inside.
At first glance, everything looked great—though one section of the house seemed unusually dark. Upon closer inspection, I realized why: There had been a fire.
Instead of writing the property off then and there, I looked a little closer and came to the conclusion that the damage wasn’t really that bad.
Come auction day, other investors were obviously aware of the fire damage; almost no one wanted to bid. These investors had done some homework, but I doubt that they looked closely enough to really gauge the extent of the damage. Since I had seen the fire damage with my own eyes, I was confident that we could complete the required repairs and still secure a tidy profit—if we could buy it for the right price.
With very little competition, we bought the property for a great price that day. And as I suspected, thanks to a little extra due diligence, all it took to get the property ready for resale was a little help from a fire restoration company and a fresh coat of paint—minor expenses when it comes to fix and flips.
The deal was so profitable that we decided to buy another foreclosure with known fire damage shortly after.
Before bidding on a foreclosure at auction (or writing one off), do your due diligence and find the time for a drive-by inspection. This simple step can save you from making a costly mistake. Plus, it will give you the extra edge you need to secure low-cost properties with plenty of profit potential.
In Bidding to Buy, the upcoming book I co-authored with David Osborn, we outline our entire drive-by process and all of the other steps we take to research and buy foreclosures at auction. Grab your copy now from the BiggerPockets Bookstore.
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