There was an auction for a couple of investment properties in my area not to long ago and I decided to go and try my hand.\u00a0 I have never had any success buying properties at an auction.\u00a0 Someone always seems to be doing too much at auctions, such as asking for or paying too much. \u00a0Would this auction be the same or would I finally get to say I have purchased a property at an auction?<\/p>\n
Unfortunately, I still cannot say that I have purchased a property at an auction.\u00a0 The owners were asking for too much.\u00a0 However, the auction was still interesting and in my mind worth going to for a few reasons.<\/p>\n
First is simply for the experience.\u00a0 An auction can be intimidating.\u00a0 You are bidding out in the open against others standing right there looking at you.\u00a0 No hiding behind an e-mail offer here.\u00a0 The auctioneer is pointing at you and trying to get you to bid more.\u00a0 You have to be cool and focused.\u00a0 It was worth going just to get some more of that experience under my belt.<\/p>\n
Second, the auction validated my investing knowledge and techniques.\u00a0 Prior to the auction, I toured the property, reviewed the financial statements, ran my numbers and developed a maximum bid.\u00a0 During the auction, several other investors also showed up to bid.\u00a0 Soon after the auction started, the price was quickly established a bit above my max despite the best efforts of the auctioneer.\u00a0 The market had spoken and it felt satisfying that I was in tune with the market.<\/p>\n
The market spoke again at the second property auction.\u00a0 This property was a four-plex in a desirable area surrounded by single family homes.\u00a0 The owners had poured a lot of money into the property and it was in great condition.\u00a0 The single family homes in the area were selling for $300,000 plus.\u00a0 But the numbers on the four-plex did not justify a price much above $160,000 and again, and that was the price were the bidding stopped.<\/p>\n
It did not matter that the property was fixed up so well.\u00a0 It did not matter that the single family homes surrounding it were selling for so much more.\u00a0 This was an investment property<\/a> and the market dictates what you can generate in rent and thus what the price will be.<\/p>\n So finally, participating in this auction reminded me to listen to what the market is saying and to trust what my numbers are saying to me.\u00a0 Sometimes we need to be reminded of that every once in a while as bidding, competition, hedge funds or whatever else drive up prices.\u00a0 We as investors need to remember that 2 + 2 always equals 4, never 5.\u00a0 If the numbers do not work, walk away.\u00a0 Let someone else win the bid.\u00a0 You will still be there in a couple of years to likely pick up the same property on.<\/p>\n