Wholesaling Auction/ Foreclosed homes

11 Replies

Originally posted by @Markia Dunn :

How do I wholesale foreclosure/ auction houses? I hear around that it's possible, but wouldn't I have to pay up front if i win the bid?

I suppose its possible that you could see a property scheduled for auction, execute a contract with some sucker for a purchase price at $XX, and that sucker could put hundreds of thousands of dollars in cashier's checks in your hands, so that you could bid on their behalf at auction for $YY, and then collect the difference as your cut after auction when you put the property in their name? Possible...not probable. 

@Markia Dunn   Hey Markia, I go to 3 foreclosure auctions here in New York, every week.  The guys that are winning the most properties are wholesalers.  They are very aggressive in the auction, there are lots of theatrics going on.  When they snatch a good deal (and they do) in NY (I know every place is different) but in NY you have to put down 10% of the bid in cashier check/money order or cash to the referee appointed by the court.  They then turn around to all investors in the area and try to flip the contract for $10,000 - $20,000 in some cases even $100,000 more.  They don't intend to close on the property, only flip the contract.  Its very popular here, and unfortunately whats driving auction prices so high so it becomes harder for others to get a deal.

So for example, property has ARV of $650,000. Some investors will pay $475,000, in auction the wholesalers will try to snatch it for $430,000 (There are all sort of reasons why this happens, maybe it was the last item at the auction and people used cash and bought other items, maybe somebody was a second too late and the auctioneer didnt get their bid - in NY the auction goes SUPER fast) so they buy it for $430,000 and give a check or cash for $43,000 (now they have contract) they reach out to everybody and offer the property for $450,000 so to the investor paying $475,000 $450,000 is a great deal. They assign their contract for $20,000 plus the $43,000 deposit they put, and now the new investor closes at $430,000 with the bank + $20,000, so that investor paid $450,000 and everybody is happy.

That's how it works locally here, I have looked up foreclosure auctions in other parts of the country and there is way more opportunity to make money wholesaling at auction, just because how the auction is set up process wise.

Best of luck, hope that helps!

@Markia Dunn However, you should be clear about the laws on unlicensed wholesaling in your state. Definitely check that out before going any further with wholesaling. Another thing is that foreclosure auctions can be tricky because you buy as is and won't have a chance to view the inside of the property. Seasoned investors tend to make the best purchases at these auctions. If you are starting out in the world of real estate you might want to tackle something easier.

Good Luck!

@Markia Dunn   I was actually thinking about your post today, I should also mention the wholesalers that are playing the auction wholesale game here, are also bankrolled very well.  All those 10% deposits add up, and you need to have money to hold for a few weeks/months in certain situations.

@Ehsan Rishat @Markia Dunn Totally agree, when I first started going to foreclosure auctions I accidentally bought a second mortgage and got screwed really bad - that was an expensive lesson. Lots of the people that go, do TONS of homework before, and its that homework that makes all the difference, that and skill at the auction which you will gain with time. I know I am still always learning, your best bet is keep going, keep observing, see who buys what, who buys where, what prices do they pay in what conditions, see if you can see who got a good deal and a bad deal, little by little you will get more comfortable and familiar - but it takes time and patience, I remember in the beginning I would get REALLY frustrated.