So I Went to a Real Estate Auction

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There was an auction for a couple of investment properties in my area not to long ago and I decided to go and try my hand.  I have never had any success buying properties at an auction.  Someone always seems to be doing too much at auctions, such as asking for or paying too much.  Would this auction be the same or would I finally get to say I have purchased a property at an auction?

Unfortunately, I still cannot say that I have purchased a property at an auction.  The owners were asking for too much.  However, the auction was still interesting and in my mind worth going to for a few reasons.

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Lessons Learned at the Real Estate Auction

First is simply for the experience.  An auction can be intimidating.  You are bidding out in the open against others standing right there looking at you.  No hiding behind an e-mail offer here.  The auctioneer is pointing at you and trying to get you to bid more.  You have to be cool and focused.  It was worth going just to get some more of that experience under my belt.

Second, the auction validated my investing knowledge and techniques.  Prior to the auction, I toured the property, reviewed the financial statements, ran my numbers and developed a maximum bid.  During the auction, several other investors also showed up to bid.  Soon after the auction started, the price was quickly established a bit above my max despite the best efforts of the auctioneer.  The market had spoken and it felt satisfying that I was in tune with the market.

The market spoke again at the second property auction.  This property was a four-plex in a desirable area surrounded by single family homes.  The owners had poured a lot of money into the property and it was in great condition.  The single family homes in the area were selling for $300,000 plus.  But the numbers on the four-plex did not justify a price much above $160,000 and again, and that was the price were the bidding stopped.

It did not matter that the property was fixed up so well.  It did not matter that the single family homes surrounding it were selling for so much more.  This was an investment property and the market dictates what you can generate in rent and thus what the price will be.

So finally, participating in this auction reminded me to listen to what the market is saying and to trust what my numbers are saying to me.  Sometimes we need to be reminded of that every once in a while as bidding, competition, hedge funds or whatever else drive up prices.  We as investors need to remember that 2 + 2 always equals 4, never 5.  If the numbers do not work, walk away.  Let someone else win the bid.  You will still be there in a couple of years to likely pick up the same property on.

Photo: Gillian

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

8 Comments

  1. Good post! Out of curiosity, what were the rents like on that 4-plex? I would have expected a maintained multifamily property in an area with SFR comps in that range to be worth a lot more.

    • Kevin Perk

      Ethan,

      The rents were comparable to other units in the same market. Remember, an investment property is only as valuable as the income it brings in. It does not matter if it is surrounded by more expensive single family dwellings. It will only bring in so much in rent.

      Run your numbers and trust them!

      Thanks for reading and commenting,

      Kevin

  2. Great advice Kevin. I have not purchased way more properties that I have made an offer on than I have purchased because others were willing to pay more. But the flip side is I have never regretted a purchase, because I trusted the numbers. If the home is your primary residence, you can let your heart influence your buying decision, but then, only a little, but never for an investment property.

    Continued success Kevin.

  3. Hi Kevin,

    What a timely article…I will be attending a “round robin” house auction this coming weekend for a duplex in our town. It says the only ones that will be allowed to place a bid are those who show up to the open houses on Sat and Sun.

    I’m listing the bidding rules and was wondering if you had ever attended an auction like this…

    Only buyers who have come to the open house Saturday or Sunday (10-4) may bid.
    • Bids may be left at any level, at any time prior to 7:00 pm Sunday evening.
    • No one can enter the bidding after 7:00 pm Sunday evening.
    • The bidding will be open. We will tell anyone the status of the bids at any time.
    • This home will be sold to the highest qualifying bidder in round-robin bidding Sunday night.
    • The highest bidder prior to the round-robin bidding will have the opportunity to make the first bid when the final bidding begins. Then the next highest bidder will get the second call, and so on down the list.
    • Every bidder will have the opportunity to top the high bid until the highest bidder is established.
    • If there is more than 1 bid at the same level, the earliest bid will be honored.
    • Bids must be at least $500 apart. ($49,500/$50,000/$50,500 — Etc.)
    • The highest bidder will be offered the home at the bid price.
    • On Monday, after establishing the highest bidder, I will contact my real estate attorney (and the bidder contacts theirs). The attorney’s write up the agreements.
    • The house is being sold “as is” condition. Any fixing needing to be done will be done by the bidder, not the seller. I will have on hand at the open house the inspection report from 5 years before for every to look over.
    • There are no real estate commissions being paid out of the bid price. If $50,000 is the highest bid, $50,000 is what is being paid to the seller.

    We found it on Craigslist at the following address: http://utica.craigslist.org/reo/3874276669.html

    Anyway I will be venturing off to see how this is going to work. Prices are substantially lower than in your market, but we’re a small city in New York where many people have left over the last number of years.

    Again thanks for the timely offer and great counsel

    Paul

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