Hi Friends! I’ve been looking into property auctions lately. These properties are usually sold “as is” without inspection. Some have active renters, so even inspecting the property’s exterior close up isn’t possible.
Is there a rule of thumb when considering these kinds of deals?
If you were to assume a worst case scenario in repairs, how could you factor that into the numbers when doing math on the deal?
Or is it always a bad idea to buy a properties with no inspection or walk through?
Depends on the market, experience level, budget, and risk tolerance. I've been doing REI for 4 years and I wouldn't touch a property without viewing it first. Rehabbing distressed properties can be really rewarding but it's always full of surprises. I like to limit surprises.
I think the auction game is died up currently but that could change in the future. It's something to consider but I don't think many investors are finding deals that way. I know two big time investors and neither of them are attending auctions. That's just my two cents.
Updated about 2 months ago
dried up **
@Joshua Moore Yes, there's added risk but that's why you have the chance to get it at a greater discount. For the smaller investor, your best chance to get a great deal is to find the diamond in the rough that others aren't looking at.
I bought about 20 condos at trustee sales from 2011-2013 in CA. At first, no one was looking at these, which were selling for less than you could buy on the MLS and were also less than the per unit price of multifamily. In 2013, more bidders came on the scene and the deals were gone.
Near the end, I didn't go physically inspect the condos because we had enough experience with them that we could make assumptions based on the averages. With SFRs, I wouldn't assume that the structure was still standing and I'd make sure to see it first.
The investors willing to buy at tighter margins are tough competition and can outbid the smaller guys on the regular basis. I assume that they're willing to take additional risk because they do higher volume and can absorb the occasional loss where the rehab is more than they expect.
Thanks Andy & Jaron, both super helpful comments. I'll stay away from those properties for the time being.
I used to buy under similar conditions at tax sales in TX. It was rare that anyone would pay more.than 50% of the market value. That's an approximation of how much I migh be willing to pay for a property under those terms.