Real Estate Investor · Los Banos, CA · Member since 2014 · 21 posts · 5 votes
I just got back from a foreclosure auction and I don't get it. All of the properties went for above fair market value/comps/zestimates etc.
I understand the properties bought back by the creditor when they weren't being bid up enough, but what is the strategy for the rest of the bidders? I can't imagine they are trying to flip the properties, and the numbers don't make sense to me to hold as a rental. The properties were spread out geographically speaking so its not a developer grabbing up chunks of land (I don't think). What am I missing. How are these buyers planning on making money?
In today's fast moving market, Zestimate is way behind the curve in my opinion. The comps you're using might be a little dated.
Investors/flippers at the courthouse steps generally know what they are doing fairly well. You might think they are paying above FMV, but they may not. The profit margin on flips have been squeezed quite a bit in the last 18 - 24 months or so. There will be a day when these investors will get burn, but we're not at that time yet in my opinion.
In today's fast moving market, Zestimate is way behind the curve in my opinion. The comps you're using might be a little dated.
Investors/flippers at the courthouse steps generally know what they are doing fairly well. You might think they are paying above FMV, but they may not. The profit margin on flips have been squeezed quite a bit in the last 18 - 24 months or so. There will be a day when these investors will get burn, but we're not at that time yet in my opinion.
@Justin Campiotti Simply, lots of buyers overpay and banks don't actually pay anything other than the cost of sale and a commission to the auctioneer. It is often part of the process that lenders have to complete the foreclosure by "buying back" the property to collect on the insurance for the underlying loan they originally made on the property.
Sometimes the lender's representative will have a number that they are authorized to bid up to, that actually is below FMV, but they don't disclose that. Savvy bidders will bid up to their own number to see if the lender's rep will stop bidding before they do. That's how an occasional good deal is there for the taking at these auctions - from my experience. There's always a risk factor in not knowing exactly what you are buying because there's usually no inspection period before you buy and you are committed to purchase (usually the same day) once you are the winning bidder.
Thanks for the info @Account Closed All of the bidders looked pretty seasoned so I doubt they were in the business of losing money! I thought maybe there was some other money making strategy at work here.
Thanks for the info @Account Closed All of the bidders looked pretty seasoned so I doubt they were in the business of losing money! I thought maybe there was some other money making strategy at work here.
There were a lot of money to be made during the earlier years when foreclosures and short sales were abundant. This reminds me of the saying buy when there's blood in the streets.
It has been slim picking. However, some are still making a killing flipping properties. Unfortunately, these deals go to the well-connected investors/agents first. It's very very tough for the newbies to break into this sphere now. It's time to hone your skills, polish them up and get ready for the next down turn in a few years.
You got me curious. When you look at the comps? Did you look at the overall comps, flips comps, or distress sales comps? What do you think the comps will be if all the short sales & REO sales reduce to a low level?
What kind of rent those investors can get from buying those houses at auction?
I was looking at one of the flips at Los Banos. It seems like the margin is pretty slim. I doubt this investor made more than 20K here. http://www.redfin.com/CA/Los-Banos/1791-Mills-Dr-93635/home/19672832
@David C. The comps I used were just a few comparable resales in the area. There wasn't a whole lot to chose from as the properties were located in Atwater, Livingston, and Merced. As I didn't intend to purchase anything, I wasn't too particular or detailed about the comps. My guess on rents... You would be doing well to get 700-750 a month from the first two houses that both sold at a little over $160K. That's a lot of cash to tie up for that kind of rent.
As for Los Banos, I'm not seeing a whole lot of upside either. Everyone was overleveraged when the bottom dropped out (a lot of Bay Area transplants in the mid/late 2000's) so the foreclosures are pretty close, if not over, market value. I'm sure there is a deal to be had, I just haven't found it yet!