Any experienced auction buyers?

Question

Hello all, I am looking into flipping in Houston area. I am very interested in finding foreclosure deals through online auctions, but since this is my first time, I have a few questions to the experienced ones. Before bidding, do I need to pay an inspector to check the property? Or is the inspection provided in their listing reliable? When interior access is not available, is it still worth considering it? Is an agent recommended when buying through auction?

Thank you all in advance, looking forward to reading your replies!

Ana

Thank you all in advance, looking forward to reading your replies!

Ana

Brian Alfaro · Answer

They’re everywhere. Attend a local investors meeting and you’ll run into at least one. You can find meetings at meetup.com or here on BP by looking at the events page. There’s also a million of them on Facebook. Just a Houston Real Estate Investors group and you’ll see them on there.

Word of caution with Wholesalers - do your due diligence on the property. Don’t assume their numbers are correct. Also, the price you see is always negotiable. Don’t buy a bad deal from anyone just to get your first deal done. Remember - all in for 70% or less of ARV or no deal.

Jay Hinrichs · Answer

second the caution with wholesalers..  do not believe a thing they represent.. you need to independently confirm their numbers and assertions.. especially when it comes to ARV and rehab costs..  look at them as just another lead source.. and don't get caught up in their hype.

Ana Barros · Answer

Thank you @Jay Hinrichs and @Brian Alfaro!

I am so glad I have found this forum. I already know so much more than I did 2 days ago! :)

Ana Barros · Answer

@Brian Alfaro

So much valuable information!!!  I can't thank you enough! I will start looking these other places. How do people usually find a wholesaler?

Brian Alfaro · Answer

Not necessarily - if the numbers make sense on a cash purchase on a foreclosure, then go for it. There isn't one "best place" to look. Investors are combing through every place available - MLS, Wholesalers, Classifieds (Facebook, Craigslist), and more specifically spending energy doing off-market deals by reaching out to motivated sellers.

I have had bad luck finding distressed homes on the MLS that I can be all in for 70% or less. They get snatched up in hours or 1-3 days usually. If you're slow to run your numbers or don't have financing lined up, someone's likely to beat you to it. There are extremely experienced flippers in our market that have it down to a science and have economies of scale with rehabs (they can do them cheaper than you & me because they have their own crew and buy materials wholesale in bulk) and they have acquisition agents calling the listing agents of properties on the MLS daily making cash offers. In order to make it work for yourself, you either need to get a great deal off the MLS by getting lucky/beating someone to it or find distressed properties yourself from properties that AREN'T listed so you aren't directly competing with dozens of other people. If it's listed you're likely going to have to overpay to get it, and if you win you have to stop and ask why - did you overpay? Maybe, maybe not.

In summary, look everywhere - MLS, Wholesalers, Classifieds (Facebook, Craigslist, Chronicle Paper Listings FSBO), and also for houses you find by driving around that you see are in bad shape and not occupied. Look up the owners info and either mail them a letter or call them asking if they want to sell.

Ana Barros · Answer

@Brian Alfaro

Brian, thank you so much for your response. See, I need to talk to people like you to understand a little more about the market in Houston. Like I mentioned, I am new to this, and I am exploring my options. We do want to flip, so if I understood correctly, the best place to find such properties would NOT be through foreclosures, right? Is it best just to look for distressed homes through regular listing? The ARV I am looking for would be just below $200k, I agree that anything over that would be harder to sell, and I don't want any extra holding costs that can be avoided.

Brian Alfaro · Answer

@Ana Barros

Oh and to answer your question, I do not believe you get to inspect all the houses prior to auction because some may be occupied - that’s the risk. Not 100% sure. I would recommend if you are 100% certain you want to focus on foreclosures to find a real estate agent in the Houston area who has experience and an expertise in foreclosures. Not every agent does them.

Brian Alfaro · Answer

@Ana Barros

Ana! I don’t know much or have experience with foreclosures, but I have made some offers on them before for Buy & Hold. I can tell you that foreclosures listed online are hard to get at a price in the Houston area that will allow you to flip them. These are for properties on those websites or on the MLS.

First, please note foreclosures require all cash. They want proof of funds, and hard money doesn’t count. They want actual cash because the bank that owns the asset wants to ensure you can come through and a hard money loan is still considered financing to them.

Second, on those auction sites they have a minimum reserve set on most houses. The reserve is often the loan balance on the property and sometimes more if the bank thinks it can get closer to market value for it. If you see a house for $100k and need it at $80k to be all in at 70% for a flip, you can submit a bid for $80k with a small deposit, but if it isn’t above the reserve, even if you are the highest bidder you will NOT receive the property. They’ll simply say it didn’t meet the reserve, give you back your deposit, and relist it in a week on the same site over and over until it sells. Also note the price drops if it doesn’t sell are modest - $2-5k at a time.

Finally, for foreclosures on the MLS, please note that if the property is less than $100k be prepared to get into a bidding war with other actual cash buyers unless it’s not a good deal (where you can be all in for 70% of ARV). Make sure you have an agent lined up ready to submit offers with proof of funds. The lowest amount of inventory in the market and fasted moving are houses less than $100k and between $100-200k as of today. If you’re planning on flipping be cautious with anything with an ARV over $200k as those houses are sitting a little longer than usual right now - 30-60+ days. Doesn’t mean don’t do it; just build it into your holding cost!

Hope this info helps!

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