Auction fix and flip

[Daniel Kucheruck]

Hi there! I'm currently a contractor operating just outside of Philadelphia and looking at getting into flipping. For the last few months I've been watching local auctions and it seems that could be a great way of scoring a good deal granted there are risks for sure. Homes seem to be going for around $300k at auction that have ~$450K ARV.

There is a nearby single family home that has been boarded up for the last two years which I think could be a really good deal due to the neighborhood, sq ft, and room count.  What should I be looking at in this situation?  Should I include an even larger contingency based on being boarded up? 

Thanks!

[Stuart Udis]

@Daniel Kucheruck Since you posted in Philadelphia I assume you are looking at the Philadelphia sales?  If so are you looking at tax or mortgage? With tax sales you typically cannot obtain title insurance for a year from the date the deed is recorded (this typically meeans 14+ months from the date you complete the purchase). If you are looking at $300K purchases and then must hold the property for over a year before its insurable that carrying cost with no leverage is difficult unless you are extremely well capitalized. Even with mortgage sales you still will have to settle cash and then refinance if you plan on using a construction loan to complete the rehabilitation.

Furthermore, I would check your comps again because these auctions do not typically offer that strong of deals relative to the MLS and its difficult to ascertain the true "as is" value of these properties without the ability to phsyically inspect them. I just question the frequency $300K properties come up that have $150K of instant equity in them. As somome who is getting into flipping, there are less risky avenues I would recommend that allow for a full diligence process.