Auctions

[Daniel Peavey]

Auctions!!  Are there still potential liens when buying at a auction???  

If so, what is legal procedure to clear the liens??

[Ron S.]

Originally posted by @James W.:

@James. Hi.

1) No. They don't give ANY disclosure about anything.

4) ... Anything I give the auctioneer over what the successful bid is will be returned to me. Better to have too much than not enough.

 Thanks Ron!

1 - So I do Title Search before going to Auction that is. For going to a few - it would be quite a spend of title check fees. Any recommendations for free or low cost but dependable title search online? Or is the only way the hard way - go to the county clerk?

4 - These have to be certified checks, correct? Or can I take personal checks (sorry). Its great to know they return the excess - so probably best to make a single check of 15K above what my highest bid is going to be.

Btw- do you also have experience buying REO's below market and reselling them at market? My little experience so far has been, that 10-12% below market value just evaporates away as my cost. Then if i have to make 10% - i need to buy 20-25% below market price. And when i say that to the lsting agent - they dont want to talk no more! they wont budge. So how does that ever work for anyone?

An example is a REO condo listed at 250K. My costs of buy closing, sell closing, 5% commission to resell at 250 again, 3 months holding period tax and condo fees - come to 25K. Thats 10% - that just went away as costs. And then if I want to make 10% - I need to offer 200K. But the agent wont talk to me now. If make that call for 5 condos - the whole county agents will probably blacklist me.

1) I would go to a title company and pay them for a preliminary title report. yes, it's expensive but the couple of hundred dollars you spend to find out what you don't know, could save you tens of thousands down the road, if not more. Not doing a prelim is like buying a brand new Mercedes that cost $60,000 from a guy on Craigslist for $10,000, only to find out that while you were sleeping on the night of purchase, a tow truck came to take your car and a sheriff was knocking on your door to arrest you for having a stolen vehicle. That might be an egregious example but I think you get my point.

4) Yes. Always certified funds. If you want to take one check for $15M above your max, fine. It may take a few weeks to get the excess funds back so as long as you don't mind waiting and don't need the money, that's a valid strategy if you want to take one check.

We aren't in the economic environment where the REO purchase is readily available for a flip investor to make great yields any longer. Yes, there are pockets of areas and individual situations where you can get a great deal but as a whole, in a regular (Keyword) market, REO's are at or very close to market price now. 1-3 years ago? You got deals all day but today? Not so much and the margin for error today is much thinner than it was.

Unfortunately (or maybe fortunately) "fix and flip" is more myth than fact for anyone but the most experienced and well capitalized investor. Sounds like you are on to that reality though. Looks great on TV but you don't hear about the carrying costs. You hear, "Bought for $200M, put $50M into it, sold for $350M, made $100M profit...yippie"! You don't hear, "Bought for $200M, paid transfer tax, recording fees, document fees, put utilities in my name and paid for them, put insurance on property and paid for it, paid semi annual taxes, paid 9% per month holding costs to my hard money guy on $200M for six months, sold it for $350M and had to pay 6% commission on $350M plus another 3% of that in closing costs". That $100M gross profit starts to look quite a bit smaller when the dust settles.

My only suggestion would be to play your cards close to the vest. Don't let the agent know your strategy. let them know your offer and that's it. Like you pointed out though, what you need to get it for to make a profit is probably out of the ballpark for what someone else is willing to pay for it to keep it as their primary residence. you are competing with those buyers as well as other investors and other than the cash quick sale element of an investor's purchase, the buy and hold buyer that will pay market price will usually prevail to a bank seller. The only "Deals" I give to investors are for properties that are nightmares that I couldn't sell on the open market anyway. I'll discount those to get them out of my portfolio and let the investor deal with the EPA on the toxic DDT landfill on the property.

Back in the day, when I was selling MBS to the secondary markets, I was making good (great) money for my lifestyle. I didn't go crazy and leverage myself to the hilt but many of my colleagues did. Then 2008 hit. My colleagues driving Ferrari F430's last year (2007), were driving their old VW GTI that their parent's kept in the garage while they were now living in their parent's basement. My industry was not only unemployed but unemployable. Some of us used our retirement funds we built up to start a new life. Some of us did ok and survived (I did). Some of us, like my boss, took almost a million in cash from his $401K to fix and flip (This was long after 2008 but before today). He purchased homes for cash, fixed them up and then sat on them because they couldn't sell. Tried to rent them and did for some. Eventually sold them all but at a tremendous loss. He went from $800M per year in income, to a property investor, to a used car sales manager in his 50's with no retirement, no assets, no career in a very short period of time. The message I took from this was, only gamble what you can afford to lose and only do it if that loss doesn't change your lifestyle or standard of living. Granted, no risk no reward but this isn't a quarter slot machine in Tahoe. Ending up on the wrong side of an investment without a safety net can have a catastrophic impact on your life.