Hello all. Longtime lurker/listener, first time poster (woohoo me).

Anyway, I'm looking to purchase a personal residence in NJ either at the sheriff's sale, or potentially after it is taken back by the lender and sold as an "as-is" REO, but this question could very well apply to buying an investment property. I know all of the pitfalls and risks of the auction itself so my question isn't about that. My question is:

How much would you bid? I've seen a 2/3 of pre-repair value rule of thumb floating around, but not much else.

Simple question, right? Well here's where it gets tricky. The market value in perfect condition is about $375k. When I tried to buy it as a short sale (which didn't work, long story), I had a contractor walk through and give me a detailed estimate, which was $150k in repairs to get it to market value. So based on that, pre-repair value would be $225k, and using the 2/3 rule would be a bid price of $150k.

Follow up question would be: Would this same bid of $150k apply to making an offer on the house if it becomes an REO?

Thanks all!

The MAO formula that you are talking about (Maximum Allowable Offer) is a guide that investors use for buying houses that need work. We use the guide to keep from going beyond the point where you cant profitably exit the deal. I have seen MAO anywhere from 55-70 % of after repaired value, and it will fluctuate due to your experience and the appreciation of your market. In hot markets, investors will tend to go a bit high The reason for MAO is that you will occasionally run into an unexpected repair, and you need to have a gap between your future selling price and you all-in price.

You opening big at a sherriff sale should be the upset price, no higher. Your max bid should be your MAO - Repairs calculation.

In some cases, you can buy the note before the sale and not have to battle all of the other drones at the auction.  So there might be another way to attack this problem.   It is fairly easy if you have the seller on your side and you can get the loan info as well as a mortgage info release doc signed by the borrower. 

to your success

Josh

Thanks for the reply Josh, what you said makes sense. Though buying as a personal residence means I'm more price tolerant than an investor would be (since I'm not looking for a profit), I figure the investors bidding on it at auction or making offers on it as an REO will probably all have a similar approach, and having an idea of that "investor approach" gives be a position from which I can bargain with the lender.