Auction fix and flip…. good or bad?
Hello everyone! I am new here to bigger pockets and just getting started in the real estate business. This has been a passion of mine for a while now and after leaving a not-so-great job, I decided this was the best time to jump in! I am very interested in fixing and flipping houses in my area. There are quite a few properties near me that are up for auction. I have done a lot of research on the auction process and have learned a lot so far. There are still a few questions I have left and thought I would give bigger pockets a shot...
1. Are buying houses at auction a common thing to do? Or do investors tend to stay away from these due to the possible unforeseen costs associated with buying the property without seeing it?
2. Would a hard money lender approve a loan for an auction purchase and rehab? (with the assumption that a bid would not go higher than a certain price to account for renovations, possible unforeseen costs, RIO, etc.)
Thank you so much!
I bought my first two at auction. I could drive by and see general conditions, but could not enter the house. It's risky. By nature, many investors are risk takers. There's money to be make because of the relatively lower price of the property. Some will work out well and some won't. On both of the two I bought there were costs I hadn't foreseen. You'll need to have money in reserves for costs you didn't know about. A new furnace that you had hoped would not need to be replaced, etc. Both properties have worked out fine.
Are you risk averse? Then this strategy is not for you.
I have never used a hard money lender so I can't speak to #2.
Quote from @Carini Rochester:
I bought my first two at auction. I could drive by and see general conditions, but could not enter the house. It's risky. By nature, many investors are risk takers. There's money to be make because of the relatively lower price of the property. Some will work out well and some won't. On both of the two I bought there were costs I hadn't foreseen. You'll need to have money in reserves for costs you didn't know about. A new furnace that you had hoped would not need to be replaced, etc. Both properties have worked out fine.
Are you risk averse? Then this strategy is not for you.
I have never used a hard money lender so I can't speak to #2.
Thanks for your feedback!
Hi! I am a full time agent in MA.
To answer #2, yes, a hard money lender will provide a loan for that type of property given the numbers make sense. Obviously there are going to be unknowns if you purchase an auction sight unseen, so I would just make sure your purchase price is very conservative and you largely overestimate your reno budget to leave plenty of room for errors or surprises. Also be conservative in estimating your ARV.
The fix and flip calculators here on BP are very useful. Invest in a Pro account so that you have unlimited access to them to analyze a few dozen deals before you make any offers. I have personally brought the report the fix and flip calculator generates to a private lender before to show them the numbers and why I believe it makes sense, and it has worked well for me. I just purchased and started demo on my first personal flip.
Quote from @Holly Frongillo:
Hi! I am a full time agent in MA.
To answer #2, yes, a hard money lender will provide a loan for that type of property given the numbers make sense. Obviously there are going to be unknowns if you purchase an auction sight unseen, so I would just make sure your purchase price is very conservative and you largely overestimate your reno budget to leave plenty of room for errors or surprises. Also be conservative in estimating your ARV.
The fix and flip calculators here on BP are very useful. Invest in a Pro account so that you have unlimited access to them to analyze a few dozen deals before you make any offers. I have personally brought the report the fix and flip calculator generates to a private lender before to show them the numbers and why I believe it makes sense, and it has worked well for me. I just purchased and started demo on my first personal flip.
Thank you for your feedback! I will look into the fix and flip calculator on here!