HOW DO I KNOW I AM BUYING RIGHT AT PROPERTY AUCTIONS?
That is the big question. As all of us know, buing in real estate and even at the bank foreclosure auctions is not risk free, so how do we minimize that risk?
1. Get a formula and stick with it.
I can tell you from first hand experience that the investors that are most successful at home foreclosure auctions have their own formula or system for selecting their max bid. It basically comes down to what you are happy making. If you are looking to make a quick 20to 30% on your money, that is not always the case. Our investors average about 15% net before taxes on their flip, and the average time on market is 88 days generally which usually means homes are getting bid up anywhere from 70-80% on the dollar. The big thing is don't get frustrated when you are not getting every home you bid on. Just because you are getting out bid does not mean that you have something wrong or are missing something. For all you know, the investor who just out bid you does not know what they are doing and are going to lose a lot of money, which is exactly what we are hearing from our competition, that their investors are losing money left and right. And not just a little money, a lot of money. These onesee, twosee investors as we call them will realize soon enough the hard way that they paid too much. We are not in the business of losing money, or as one of our investors puts it "working for free." So stick to the formula and be patient, so when you do place your property bid and get the home, you are confident you bought right.
2. Know the value
There are many sites out there to help us know what the home is worth. Unfortunately, many if not most of those sites are not entirely accurate when it comes to telling value such as zillow, or going straight off tax comps. In my opinion, the most accurate comps you can get are straight off the MLS (Multiple Listing Service) so it helps to have a realtor in your back pocket who can look at what has recently closed (last three months), what is currently pending (possibly will be used as comps when an appraiser is doing the appraisal on your home if they have closed since then) and what is currently for sale in the subdivision or active on the MLS. It is important to know what your competition is. Also, you need to remember that a large percentage of what is on the market right now are foreclosed homes for sale, or bank owned or are short sales, so you will have an advantage over those. A regular buyer would rather go with a regular seller or a flipper over a foreclosure listings any day. If you know what the true value is and what you feel you can confidently sell the home for, you are ahead of the game by far.
3. Know the area you are buying in.
If you know the area and what that area has to offer, you will be ahead of the game. There are enough AZ foreclosures going every day to auction and there there are still many more foreclosure homes for sale that will be going to auction for everybody to be happy and get a piece of the pie, so don't be afraid to have a niche and go after that niche. To give you an example, we were bidding on a property in Johnson Ranch in Queen Creek that we knew was in a specific 55+ community that nobody else really knew about, so when every body else was thinking the resale on the property was around 120K, we knew it was closer to 160K and that is exactly what our investor ended up selling the home for. It is not a bad idea to take an afternoon and drive around the subdivisions where you constantly see stuff going to auction. See how the neighborhood presents itself, what features does it have that would maybe give it an edge over another home going a half a mile down the street. Remember, knowledge is power in property auctions as well.
