Foreclosure Auction Classes

My Lesson on Foreclosure Auctions

I recently became interested in learning about how to acquire real estate through Foreclosure Auctions. After listening to Sharad Mehta on Bigger Pockets Podcast #155 and learning that most of his real estate deals after he moved to California were acquired through real estate auctions (sheriff sales) vs. deals through other sources such as MLS deals (he stated this at 55 minutes into the podcast), I became motivated to learn more about Foreclosure Auctions.

First before I tell my Foreclosure learning experience I must state that BP podcast #155 guest Sharad Mehta's values align with my own when it comes to real estate investing. These values are: having the goal of owning the property free and clear / not using leverage (No mortgage = your income is yours and not the banks), investing for passive income / cash flow, and being frugal regarding my expenses.

Having learned that networking is key in real estate business I decided to look up a local real estate group to do some networking regarding Foreclosures. My first stop was on the popular website www.meetup.com there I found several "meet up groups" in my local area. After attending the first one I realized that these groups are actually real estate brokers trying to generate business for their firms. They do offer a couple of days of free education however, what they are selling is their real estate services and various financing options for you to use to purchase a foreclosure.The do a lot of the work for you too they have websites that list the properties they have had someone go out and visit the property if possible and grade the various items (roof, exterior, yard, area, house, vacancy).Their packet of information also lets you know what their estimated fair market value is as well as minimum bid information.

I attended two of the classes last week (Tuesday and Thursday) and then went to the Real Estate Auction on Friday.

The first class explained many valuable information points.The following is a summary of the first class I went to on Tuesday:

• What the four main reasons why people go into foreclosure? (ARM coming due and not being able to afford the new or balloon payment, Too much Debt-Bankruptcy, Medical Problems, Divorce)
• The talked about the number of properties that go to auction each week and what percentage of these are actually profitable.Of course this varies with the population density of the county you are in.They said that the percent profitable is 50%.
• What options are available when acquiring Real Estate:
  • RETAIL:(cost 90% of market value)
  • REO: (cost 85% of market value)
  • SHORT SALE: (80% of market value)
  • Pre-Foreclosure: (65% to 75% of market value)
  • Foreclosure Auction: (65% to 75% of market value)
• The Notice of Trustee sale is filed with the court and is public record.This document gives you the name of the Trustee the Auction Date, Time and Location of the Auction, and the property address along with information regarding the owners delinquencies and fees due.
• The Foreclosure life-cycle and how long it takes.120 days from the default payment to the Auction.
• The 7 Critical mistakes you could make when buying a foreclosure
  • Don’t assume there are no liens.Research the Title: Is the foreclosure the 1st or 2nd? Are there IRS liens, back taxes or other liens?
  • Don’t buy sight unseen: Know the condition and location of the home.
  • Don’t Pay too much: Buy properties at 25% to 45% of market value.
  • Don’t buy with emotion.
  • Don’t estimate value – KNOW value: Don’t use Zillow, assessed value; use complete (CMA - Comparative Market Analysis) and know condition.
  • Don’t use gross profit – KNOW all costs.NET PROFIT! Hard$$, Selling Costs, fix up, ect.
  • Don’t be random – Know exit strategy: Personal residence, flip, rental, 1031 exchange, ect.
• 10 Steps of buying a Foreclosure:
  • Get money.
  • Find the Property to purchase.
  • Evaluate the deal.
  • Purchase at the auction.
  • Secure the Property. (Insure the property)
  • Perform any Fix-Ups.
  • Stage and Market the property.
  • Selling the property or:
  • Renting the property?
  • Know your tax strategy.

At the second class on Thursday the same week the presentation was all about which properties were going to auction the next morning.They also had a free dinner.This was also a great place to network with other investors who were doing deals in the foreclosure arena.

On Friday I arrived early for the auction.It was scheduled to start at 10 AM and I arrived at 9:15.There were already representatives from the real estate firms there to help investors with future auctions.Also there were several lenders there asking if I wanted to borrow their money to buy a foreclosure.I am not a big fan or borrowing money (see above).

It was well worth the time taking the foreclosure seminar and I learned a lot.I do not thing my learning in this area is over however.I will no search for books on the subject and ask the people in my network about their experiences with foreclosures.

I hope this blog post motivates some of you to get interested in alternative ways to achieve your real estate goals.Please feel free to connect with my on Bigger Pockets or Meet up.Hope to see you soon.Best regards.

Chuck David