Looking at an auction property for first buy...Advice?

Question

I have been looking to get started in buying rentals. I came across a house in a really nice neighborhood that will need some tlc and is up for auction. It is listed on Xome and I am wondering who has experience with auctions and what else to look out for besides getting with a lawyer and checking for liens, title, and backtaxes. Any help or guidance would be greatly appreciated.

Robert Leonard · Answer

Yes, I've been the "winning bidder" below the reserve a couple of times. I didn't end up buying either one of those properties. That was on auction.com. They were terrible at negotiating. Instead of countering me, they would just say, how much more will you pay - as if I might like to bid against myself?

They drop their reserves after the properties go through a few rounds of nobody meeting the reserve. Whether that gets low enough for you before it gets low enough for competing bidders determines if you will end up buying.

You have to have your cash lined up to buy from auctions. Whether that's your own cash or OPM, you have to have it ready for the buy and the rehab.

Larry August · Answer

It's awesome to meet someone local on here. Seems like you are already where im looking to be. I would love to hear about your journey and portfolio so far, along with the good and bad experiences along the way.

Have you ever won a property off of an auction below reserve price and how do you go about funding the cash buy and rehab?

Robert Leonard · Answer

Hey Larry,

I'm local to you. I primarily invest in Lafayette and Baton Rouge markets, but I am very familiar with the market in "the berry."

I am an investor with a real estate license. I can help you with good comps to help determine the value of the property. I've purchased an investment property from xome earlier this year too. So I'm familiar with that process. Feel free to reply here or you can call or text me at my contact info below.

Larry August · Answer

Thank you all for replying. I guess I should have given more info so you can better advise me. The property is cash sell only and you are not supposed to enter the premises. Also you can't get a pre bid inspection. I did do a quick driveby and walk around eventhough i wasnt supposed to. Everything looks pretty sound though it will need floors cabinets and paint for sure maybe a roof repair(something looked a little fishy in one spot).

starting bid is 90500

reserve is at 120500

arv would be 160-220k

finanace company bought it from sherriff auction for 72k.

no one seems to be showing interest in it so i feel like i can put in a 100k offer and if no one else bids they may entertain my offer.

If I were to bid I would find a private invester(probably my father in law) to borrow the cost of the auction from. Then use my capital to rehab,rent, refi. Does this sound like it could work?

Jay Thomas · Answer

When diving into the world of purchasing a rental property at auction, it's more than just legal checks and consultations. A comprehensive property inspection is a must to uncover potential repair costs and understand the true value. Take a close look at the neighborhood – demographics, crime rates, and rental demand can significantly impact your investment. Research the local rental market to gauge potential income and assess competition. Dive into auction terms, set contingency plans for unforeseen issues, and get ready for the post-auction process, covering paperwork and financing. Don't forget to seek guidance from a seasoned real estate attorney and, if needed, a property manager to navigate the complexities and optimize your rental management strategy.

AJ Exner · Answer

Larry,

Something you might need to consider is how soon after the purchase, or the contract being executed, does the auction company expect the funds? If you decide to do some financing for the property, you will either need to make sure that the company that you are using can close in the span of time necessary to cover the timeline that the auction requires.

A strategy that a few of my clients utilize is 'delayed financing' or a 'delayed purchase'. Basically it is you purchasing the property in cash, and then coming alongside the transaction after the fact and doing normal 'purchase' things, but it will usually get you the reverse loan terms (~85% of the purchase price + rehab finds) back to you.

The con of this strategy is that here is where you will find any kind of title, or quiet title, issues that might tie up your money before you can get it back. It would also create a 'second close' that you would have to pay the fees on.

Happy to walk you through either strategy if you would like.