All Forum Posts by: Chris Adams

Hi William,

I purchased two properties this year at auction in Colorado, below is how I go through the process.

Caveat; Colorado is unique among all 50 states in that the Trustee of the county, holds in trust properties that are in default, when the time comes the trustee holds the auction where the bank sets the starting bid price. All properties are sold, as is, where is, cash only. Buyer is responsible for everything; evictions, liens etc

Consult with a real estate attorney to understand what you are getting into, there are traps that could bankrupt you.

Here is how I handle things:

• 1)List of properties going to auction comes out once a week. I have 22hrs to complete my due diligence and do a drive-by on properties that meet my criteria.
• 2)I do internet research on the properties – Building Dep, Zillow, County assessor, Alpha listing (known meth labs). My research takes about an hour and I often select about 5 or 6 properties out of about 20. If something looks promising after I do my beer math I then jump in the car to view the properties the best I can.
• 3)I do my drive by. If I can get in I will. If I like any of the properties I will call my local title company secretary and order an O and E report, Owner and Encumbrance report. I always call before 3pm this way I have the reports by 5pm. O and E's give me lien and tax data and shows me if the sale is even the first mortgage. I will also call my realestate agent to have him double check ARV's and pull any additional data on the property and the surroundings.
• 4)Go home and run my numbers tight, over and over again. I over estimate where I can to give me a cushion. I set my price the night before, I always know my ceiling. At this point I have narrowed down which property I will bid on. More often than not I am down to one property.
• 5)In the morning I draw a cashier’s check for my max bid. Attend the auction and join the fray. Lots of bidding strategies not sure how useful they are. However, I will often hang back if there are multiple bidders and bid when most people drop off. Hopefully at this point I win the bid.
• 6)After the purchase there is a redemption period of 9 days in Colorado, where as any junior lien holders can file an intent to redeem. Meaning a junior lien holder has the right to purchase the property from me at my cost plus interest and expenses.

Below are some of the most critical things I consider before I buy; you may want to do the same, this is not a be all/end all list. Know what you are getting into.

• 1)Check Alpha list or its equivalent in your area. Know if you are bidding on a meth lab. Impossible to resell. Don’t do it. CHECK IF IT WAS A METHLAB
• 2)RUN O& E REPORT or its equivalent in your area. It costs me $5, I hear in NJ they run $100. You have to check for liens to see if there are any financial encumbrances associated with the property. You could buy title insurance. I don’t. You could also purchase the property with the liens and pay the liens. There are strategies in paying off liens. You could offer the second/third lien holder pennies on the dollar. I haven’t done that, I simply stay away.
• 3)Don’t ever over bid. Run your numbers real tight. BP has several flip calculators in the file resources. I personally don’t care for BP’s online version. DON’T OVER PAY.
• 4)Understand the REDEMPTION process. States have different laws in this regard. I understand that in some states it could take up to a year or more for the title to vest in the buyer’s name. There could also be issues with you being able to resell within a certain time frame 30, 60, 90 days check with your attorney.

Bottom line is you have to do your due diligence and homework, speak to a good real estate attorney about the auction process in your state. It will pay off. Good luck!