Advice for new investor buying and flipping at auctions
Investor · Member since 2021 · 15 posts · 14 votes
I'm looking to buy my first property. My thought process is to buy at a discounted rate at auction and then rehab and sell for profit. Obviously it's not as simple as that. Any advice on what to look at when it comes to foreclosures and how to find good/safe deals at auctions?
Hey Andrew,
I buy and flip houses at auctions in Connecticut. I've had greatest success at judicial foreclosures where the lender or bank forecloses on the home due to lack of payments. The process takes anywhere from six months to multiple years. When it does go for auction, it's published on a courthouse website. Auctions are done in the driveway of the residence and the presiding agent is a local attorney hired by the courts. All that being said, here's my top advice for you:
1) The math never lies. If you think you can sell a house for $400k and it needs $100k in repairs, you have to buy it at a price where you can make a profit. There are dozens of calculators on Bigger Pockets to help you out. Don't let emotions get involved. Don't think you can shave costs or boost the sale price since it's a flip. It's a math game. If the math doesn't work, don't waste your time.
2) These properties are usually in very rough shape. All the ones I've done required over $100k in renovations. I'm a general contractor so I know the costs pretty well, I know the subcontractors and we can do the work. If you can't do the work, find someone who can. You can be the GC if you're good at managing people. If not, hire it out. Be up front with the GC or sub on what your intentions are. If they know you're trying to flip it, they'll help you out. Don't always go with the cheapest guy.
3) Have a realistic timeline. These projects take time. Factor in the carrying costs for a flip such as financing, taxes, utilities, etc. Don't think you can buy a house, turn it around, and then sell it within 30 days. It's not realistic and you'll drive contractors away and ruin your sanity.
4) Start small. Find an estate sale such as an apartment or condo. Do a small 2 bedroom house. If you can flip a 2 bedroom, you can flip a 3 bedroom. Don't rush in to your dream project or bite off more than you can chew.
5) There is always another house. This is a piggyback of #1. Don't let emotions get involved. If you miss a house because it was too expensive or you didn't have your financing lined up, don't let it get to you. There is always another house. I've missed countless houses, felt bad about it and then one week later a dream house pops up.
6) Online auctions are crowded. Try to find town tax sales, judicial foreclosures, talk to brokers who usually do estates or bank foreclosures. Local banks often deal with certain brokers. Go to the lending departments of banks and ask who they use to sell properties. Pull the thread.
7) At the end of the day, you're providing a home. All too often, flip houses are rushed, the craftsmanship is shoddy and profit is the only goal. A family, a couple, kids, grandparents, whoever will be living in that home. Never lose sight of that and don't let the money cloud your better judgment.
Good luck.
Kevin
Hey Andrew,
I buy and flip houses at auctions in Connecticut. I've had greatest success at judicial foreclosures where the lender or bank forecloses on the home due to lack of payments. The process takes anywhere from six months to multiple years. When it does go for auction, it's published on a courthouse website. Auctions are done in the driveway of the residence and the presiding agent is a local attorney hired by the courts. All that being said, here's my top advice for you:
1) The math never lies. If you think you can sell a house for $400k and it needs $100k in repairs, you have to buy it at a price where you can make a profit. There are dozens of calculators on Bigger Pockets to help you out. Don't let emotions get involved. Don't think you can shave costs or boost the sale price since it's a flip. It's a math game. If the math doesn't work, don't waste your time.
2) These properties are usually in very rough shape. All the ones I've done required over $100k in renovations. I'm a general contractor so I know the costs pretty well, I know the subcontractors and we can do the work. If you can't do the work, find someone who can. You can be the GC if you're good at managing people. If not, hire it out. Be up front with the GC or sub on what your intentions are. If they know you're trying to flip it, they'll help you out. Don't always go with the cheapest guy.
3) Have a realistic timeline. These projects take time. Factor in the carrying costs for a flip such as financing, taxes, utilities, etc. Don't think you can buy a house, turn it around, and then sell it within 30 days. It's not realistic and you'll drive contractors away and ruin your sanity.
4) Start small. Find an estate sale such as an apartment or condo. Do a small 2 bedroom house. If you can flip a 2 bedroom, you can flip a 3 bedroom. Don't rush in to your dream project or bite off more than you can chew.
5) There is always another house. This is a piggyback of #1. Don't let emotions get involved. If you miss a house because it was too expensive or you didn't have your financing lined up, don't let it get to you. There is always another house. I've missed countless houses, felt bad about it and then one week later a dream house pops up.
6) Online auctions are crowded. Try to find town tax sales, judicial foreclosures, talk to brokers who usually do estates or bank foreclosures. Local banks often deal with certain brokers. Go to the lending departments of banks and ask who they use to sell properties. Pull the thread.
7) At the end of the day, you're providing a home. All too often, flip houses are rushed, the craftsmanship is shoddy and profit is the only goal. A family, a couple, kids, grandparents, whoever will be living in that home. Never lose sight of that and don't let the money cloud your better judgment.
Good luck.
Kevin
@Andrew Cowles, personally, I would steer you away from courthouse auctions when you are starting. You will be up against a lot of seasoned investors, and auctions become very emotional situations. Maybe you can disconnect the emotion, but being against live bidders in real time environment makes this harder than submitting an offer on an open market deal, or through a wholesaler.
Secondly, in my market, you are bidding "site unseen". I put that in quotes because you can drive past the property, but legally you are not allowed to enter or walk the property before you buy in my county (Hamilton County, Ohio). I know most people will walk the property, but you cannot get access to go inside before you buy.
Finally, as Kevin mentioned, you are likely walking into a major renovation, not a surface level rehab. These will likely be near complete guts with all new electrical, plumbing, etc. The upside is you are able to sell a nearly new house, which can typically sell for a premium. The downside is there is a lot of places to make mistakes that cost significant money.
Getting started, I would be looking at stale MLS listings. Houses that have been sitting for 60+ days. You can walk through these houses with a contractor and get a good sense of the math before buying.
@Kevin Bennett @Evan Polaski Your response is one of most clear and knowledgeable answers I've seen on auction buying. I enjoyed reading it. 100% agree about the risk involved for new investors.
Hi. My name is Eric I would like to know could you flip auction properties with a contract.
In my opinion, foreclosure auctions are not for beginners unless you have very deep pockets. One thing to keep in mind is you typically have to pay for the property in full the day of the auction so it’s a cash purchase.
Also, it’s a crapshoot what the renovation is going to be because you can’t get inside to see what needs to be done until after you own it. A big surprise on the downside on your first deal may be the end of your investing career unless you have ample cash reserves to absorb a big loss.
If you want to work on foreclosures, try to buy them before they go to the auction. You should be able to get a list of upcoming auctions and work on getting in touch with the owners before the auction and you can do a more traditional purchase. They often have their head in the sand and are ignoring the problem so phone calls and mail may not be very effective. You will likely have better luck door knocking.
As a beginner, I would focus on driving for dollars. Look up Zach Boothe on YouTube and watch his 40 day challenge from a couple of years ago.
Hi. My name is Eric I would like to know could you flip auction properties with a contract.