Auction Properties – Sold As Is & Sight Unseen?

[Joshua Moore]

Hi Friends! I’ve been looking into property auctions lately. These properties are usually sold “as is” without inspection. Some have active renters, so even inspecting the property’s exterior close up isn’t possible.

Is there a rule of thumb when considering these kinds of deals?

If you were to assume a worst case scenario in repairs, how could you factor that into the numbers when doing math on the deal? 

Or is it always a bad idea to buy a properties with no inspection or walk through? 

[Andy Mirza]

@Joshua Moore Yes, there's added risk but that's why you have the chance to get it at a greater discount. For the smaller investor, your best chance to get a great deal is to find the diamond in the rough that others aren't looking at.

I bought about 20 condos at trustee sales from 2011-2013 in CA. At first, no one was looking at these, which were selling for less than you could buy on the MLS and were also less than the per unit price of multifamily. In 2013, more bidders came on the scene and the deals were gone.

Near the end, I didn't go physically inspect the condos because we had enough experience with them that we could make assumptions based on the averages. With SFRs, I wouldn't assume that the structure was still standing and I'd make sure to see it first.

The investors willing to buy at tighter margins are tough competition and can outbid the smaller guys on the regular basis. I assume that they're willing to take additional risk because they do higher volume and can absorb the occasional loss where the rehab is more than they expect.