Auction home rehab quotes??

Question

Hello BP,

I am starting to look at foreclosure homes or homes that are being auctioned off.

So when you look at these homes online you get to see the outside and never the inside. Plus, in the description it says do not disturb current occupants.

So if I’m looking to purchase and do a rehab/quotes how can I do that without seeing the property?

Greg Dickerson · Answer

@Hudson Walker Foreclosures can be risky for that very reason. The best you can do is try to estimate interior needs based on exterior condition. If you have a general rehab budget for similar Type of house is the best you can do is estimate a worst-case scenario and buy based on that. I never buy at a foreclosure auction too many potential issues especially if they are occupied. Some people like them I stay away.

Eric M. · Answer

Greg is correct. You essentially budget for the exterior things you see. Then based on the condition of the exterior you make a conservative best guess on the interior and you will eventually come up with a formula based on SF, level of rehab, # of beds and baths. You will see other keys too.

Like if you see newer replacement windows, there is a decent chance they have also rehabbed a bath or a kitchen. If you see old aluminum windows from the 70's you probably have baths and kitchens from the 70's. If you see a new deck, you might have newer flooring inside too. If you see an old creaky, rotten deck, what do you think is inside?

Depending on the laws of your jurisdiction, it is much more dicey to buy an occupied FC at auction. In lower income areas the risk is property damage. I have had cement in pipes, water left on to flood basements, ripped out copper, etc.

In higher end homes, the risk is owners that have lawyers or are smart enough to know that they can fight the system and resist leaving with legal tactics for several weeks.

Occasionally you get both issues but not normally.

Of course, if the occupants are tenants with a lease it brings up other issues.

For me, here is the key tip for what you are really asking....which is... how the hell do I make sure I don't lose money when I can't see the inside?

Well, the insider tip is that you don't. Ideally you don't worry about it at all on an individual house basis.  You look at the bigger picture.

If you are in the business of buying unseen at auction, you must accept that YOU WILL HAVE LOSERS. If you are a flipper seeing and evaluating properties the normal way, it is quite possible you will never lose money on a house.

But in the FC business, you will have big surprises and you will have losers. If you can stay in the game, you will also have good surprises and outsized winners. You must be thinking big picture and have the mentality that you are going to do many homes and you want your total to be profitable. Not every home. Many FC investors lose on their first or an early home when they are learning and freak out and quit. You have to be able to keep going to average out the losers. If you have a solid process (that was developed flipping non FC homes probably) and keep working it, you will come out ahead.

It is a different mentality bidding on and laying cash down for homes not knowing if this is a loser or a winner but once you accept that uncertainty and lose the fear of having a loser, then it is much easier.

Frank Geiger · Answer

@Hudson Walker there are a few basics when purchasing homes from auction and I agree that it is a risky business.

1) As stated above, a rule of thumb is to estimate the interior condition based off the exterior condition.

2) Never pay your top dollar. Always assume the property needs more work than you run on your numbers. Have a percentage for unknown-unknowns.

3) When tenant occupied, budget in cash for keys.

4) Although I don't support this, sometimes a good runner off craigslist will sneak pictures through the windows. But try to get pictures of a full 360 of the house.

5) Always go see the property (or have someone go take current pictures) you'd be amazed at the difference in condition.

Hudson Walker · Answer

@Greg Dickerson that is a good point. I hate to just role the dice and get lucky.

Auction home rehab quotes??

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