Auctions for Newbies?

[Matt Watkins]

As I'm looking for deals as a new investor, a lot of houses that at least superficially meet my criteria are being offered at public auction. I have not done a deal yet, and am somewhat intimidated to try and get my first deal that way. Curious to other people's thoughts on a first time investor finding their first deal at auction? Thanks in advance!

[Jeff C.]

@Matt Watkins

Trustees sale buying accounts for 90-95% of my purchases. I've seen a lot of hopeful amateurs come and go over the years. A few common mistakes that I see them make:

1. Not researching title properly. Unknowingly buying a junior lien, a property with tons of back property taxes due, or with deed issues that effect marketability or transferability will tank you. You need a relationship with someone at a title company who will be willing to run TONS of properties for you. 

2. Underestimating repair costs. Allow for everything you can see, and then allow some more for things that you can't. There will be some. Also, if the property is occupied (and most auction properties that we buy are), then you'll have to allow for a possibly long and expensive eviction process.

3. Getting attached to a particular property. Auction buying is a very low success rate operation. If you go out for a single property, you're most likely coming home with nothing. The vast majority of auction properties set for a given day postpone, cancel, open at too high of a number, or get bid too high even if they open reasonably. You will need to have a ton of properties in mind to walk with one (and you will have to have researched and ran your numbers on all of them).

4. Getting married to the opening bid. This number bears no relationship to what the property may actually sell for. If you show up assuming you're going to buy the property at this price, you're probably wasting your time.

5. Not sticking to (or knowing) their numbers. Auctions can be exciting. They can be emotional, particularly for an amateur. There can be a temptation to not let someone "take" a property from you, but you must stick to your precalculated maximum bid and walk if bidding exceeds it.