Questions with buying homes on Auction.com

[Bryan Pham]

Hi BP,

I am interested with buying properties on auction.com. Does anyone know how this process would work? Let's say that I successfully buy a house on auction.com, would I need to reach out to an agent to finish closing the deal? Thank you BP for the clarification. 

[Account Closed]

@Bryan Pham  I would do it again - I see it as just another tool in the tool box.  I think my approach would be a bit more cautious in the future though.

@Edward C.  I purchased vacant properties (you can filter for this on their website).  I did not have to evict any existing tenants.  There were no liens on the properties however, I did have an outstanding water bill (which title insurance covered) and I had fines for un-mowed grass from the city on that same property (which title insurance covered).  It's a standard close process that took between 20 and 30 days.

Rehab costs....surprises...

I went into this with $40,000 cash in hand, a 770 credit score, and a lot of naivete.

I bought the first house for $22,500.  This house is an hour and twenty minutes from where I live.  First surprise was having to break into the house I bought.  Keep in mind, you are buying foreclosures.  I didn't think it was too bad, but it required a full rehab.  I had to replace the furnace (which cost more than I thought it would).  I had to replace the water heater (which cost more than I thought it would) - both cost more because it's a very old house with limited options for ducting the exhaust from both.  I wasn't expecting the leaky pipes or having to upgrade all the windows.  I did all the un-permitted work myself...every weekend for four months.  I was on the fence about flipping it or renting it.  My first tenant's lease is up at the end of the month and he's decided to go month to month after that.  I have about $45,000 into it total and can sell it for about $80,000.  Zillow values it higher but I think $75-$80 is realistic.  Things that make me nervous about this property is talking to neighbors, the house four houses down had the basement collapse in on in itself because of the way the city "upgraded" the storm sewer system.  I have not had any issues this year and the city seems to have resolved the problem.  I did buy flood insurance.  The house should net a small profit this year and will profit next year (if I don't sell it).

Here are Before and After pics

I got cocky and before I was done with rehab on the house above, I bought another house - a 19 hour drive from where I live (no direct flights) in a town where I have a relative.  Just for grins, I bid $4,000 on the house.  Don't bid on things just for grins - seriously, it was stupid.  What was even more stupid is after winning the auction, I figured I would need a place to stay, so I put in a pre-auction bid on another house for $7,001 that had a fenced yard where I could put dogs when I went out there.  I won that auction as well.  Honestly, I got lucky...and yeah, it was a stupid thing to do.

First, the good - I drove out (ended up staying in a hotel rather than in the house).  The $7,001 house had been owned by an older couple.  Husband had passed away.  Not sure what happened with the woman.  It was a foreclosure owned by Wells Fargo.  This was the house I argued with them about getting the lock box code.  I got lucky.  The houses needed interior paint, a couple of windows needed panes replaced, the air conditioner had been stolen out of it.  The furnace and water heater were about two years old.  I put another $7,000 into it, hired an awesome property manager, and we got it rented.  It's about 6 blocks from a University but it's still not the greatest of areas.  I have about $14,500 into it.  Zillow values in the higher $47,000 range.  I will need to put a new roof on it this summer - I'm estimating about $4,500 so I'll have about $19,000 into it total.  This house rented in February to Section 8 tenants and is currently at a profit for the year - by about $150...which will go up by the end of the year.

Here are Before and After pics (after pics are property manager's).

Second house has been a nightmare and was/is full of surprises.  This is my $4,000 hell house.  This was a Fannie Mae Home Path Property.  The listing agent refused to send me the keys - I had to show up at her office to pick them up.  When I walked into the property, the basement was just FULL of mold.  The copper pipe had obviously been stripped out of the basement (I think the entire 40 gallon water heater drained into the basement when the pipe was stolen causing the mold issue).  I knew there was some drywall repair (about a 8x8 piece of missing ceiling in the front room).  The back deck needed repair.  The bathrooms needed work, etc., etc.

Mold remediation was done in December at about $7,000.  Then I sent in the HVAC guys who replaced the air conditioner and furnace and water heater...and from them, I found out I had rusted out drains (surprise) and I had to pay to fix them (they were also licensed plumbers).  Then I hired a drywall guy that is also a "handyman" of sorts.  He went in and fixed all the drywall issues, did a lot of painting, and "fixed" the back deck.  After job completion, he mentioned that one of the electrical outlets in the kitchen wasn't working right.  I called the property manager (who has a great crew) and told her about it.  She sent out her guys and they can't figure it out so they call out an electrician for an estimate.  I wasn't happy about a $4,000 (surprise) estimate for replacing a faulty outlet in the kitchen - I told them to get an 89 cent wall plate from Home Depot and call it good.  As it turns out, they had to re-wire the basement because when they stripped the copper pipe, they also stripped the copper wire in the basement.  I didn't see it when I went out there because it was hidden behind the false ceiling....which brings me to another surprise.  When they did the mold remediation, they removed the particle board walls, which revealed hydrostatic cracks in the basement walls.  The only estimate I've received on those was from a company that said I needed to spend about $12,000 to have steal beams put in to shore up the wall...but his company didn't do that (which is why I considered the estimate to be invalid).  Last Sunday was the rainiest day in that area since 1979 and those walls have yet to leak water into the basement....the management company is sealing the cracks and painting.  We'll give it time but I doubt it's an issue.  Rehab is almost complete - tenants moved in last month.  I have about $40,000 into this house - we still have some minor repairs to do (replacing storm windows) and it should be good to go for a while.  I should net a profit next year.  Zillow values it at $60k

Here are Before and After pics (after pics are property manager's).  I should also note that the pics of the back deck are not accurate - they are before we "fixed" the deck after the guy I hired to fix it, fixed it (there shouldn't be that much space between the pickets - kids could fall through).

So the end result - I've put in about $110,000 (it's funny how you can find money when you need to - I none of these properties have loans against them), My credit score is down 100 points (some costs have gone on credit cards and I've used a lot of my savings up), and I've gained a bit of experience compared to what I've done in the past.

Going forward - I have two tax liens that I'm waiting to hear from a lawyer by the end of the month to see if foreclosure is complete.  I plan on flipping those properties quickly.  I have 5 more to foreclose on and flip next year.  I also have my eye out for other deals - I think the next time I take on a rehab project, it will be much closer to home...but there aren't deals like these in Denver at the moment.