Buying homes from City Auctions?

Question

Have any of you bought homes from city auctions? I have noticed many cities have a listing of boarded up houses that they are "auctioning" off. Many times, no one places bids on these homes and they sell between $400-$800 including any back-taxes that need to be paid.

Has anyone had any success buying, rehabing, and renting these types of homes?

Jesse Poll · Answer

Rich; I think he is talking about the 42 unit property in Oregon that you referred to above..

Rich Weese · Answer

You need to be more specific. I'm not sure which property you are talking about. I did purchase 154 unit apartment building in Texas and also the 550 unit self storage facility in Florida. Were you referring to something in my Book? Help me out with a little more info, and I'd be more than happy to respond. Rich

Account Closed · Answer

I left that part out Rich; about the undesirable areas.  I'm not offended and I agree with you.  I have family from Detroit that has move away as well.  There's some areas in Indy that I wouldn't touch either.

Rich, what did you end up doing with the apartment building? How did you increase occupancy or did you sell?

Rich Weese · Answer

Sanjiv-
I have to disagree slightly with you so please don't take any offense. Unfortunately, there are some areas where there is no demand for housing. I've seen ads in places like Detroit in the past where homes are available for $10! The problem is that the population has contracted so much that there are areas where if you try to rehab and aren't guarding the house 24 hours a day, your materials will be stolen almost as fast as you install them. I'm not convinced that even if you purchased one of these homes and fixed it up that you would find someone that actually wanted to buy it. You can't generate people to a particular area if they don't already exist there.

Here's an example of what I'm talking about. At one time I owned a 42 unit building in Ashland Oregon. The majority of the residents were students in the college there. When Pres. Reagan changed the student loan program, my building and many others almost immediately suffered a 50% decrease in occupancy. There wasn't enough demand from other renters to refill this building. The only thing that salvaged this investment was that the lender realized how bad things were and was willing to chop the interest-rate in half!

I guess my suggestion would be to do a tremendous amount of research before you just think a particular area would automatically lend itself to finding an investor or a tenant. Rich

Account Closed · Answer

There is money to be made, if there is a will there is a way.  These houses can be flipped to another investor or sold on contract.  Everyone needs somewhere to live.

Andrew Jones · Answer

I hear these commonly referred to as the NEFF "Not even for free" homes because rehab/taxes cost more than they would sell for. I would really look into how you can make a profit from these homes before buying one.

Rich Weese · Answer

I have not purchased any of these type of homes. They would scare me a little bit unless I lived in the area and knew the upside very well. I do know in the past you could actually buy a home in the Detroit area for $10. The owner, many times the city, would just like to get the taxes paid. Once you own it, it can be very difficult to get it rehabbed without the materials being stolen, and rented, and then finding a manager that wants to go into that type of area. You didn't list where you were from but if you are buying this type of property in an area where you do not live, I would really urge you to do more research. Rich