Buying at Courthouse

[Andy More]

I just noticed there is a duplex going up for foreclosure auction in a few weeks. This property is in a neighborhood that I am very familiar with. I know the market rents and I know exactly what this property will sell for in the open market in good condition.

I've never purchased at the courthouse before. What are the pittfalls of buying foreclosures on the courthouse steps besides the fact that I wont be able to have a building inspection done? I dont want to wait to buy as an REO because it seems those are attracting lots of offers thus eliminate my chance at profit.

Here's what I would like to accomplish

100k purchase price at auction

15k in improvements(im probably overestimating)

sell for 135k without realtor

property will generate some rent to offset taxes, insurance, utilities etc...

=20k gross profit to me

I would be paying cash for the property and financing improvements with cash.

Thoughts?

[Jon Holdman]

As a fix and flip, its a terrible deal. Your all in at $115K with purchase and rehab with an ARV of $135K. That's 85%. The only profit you're really getting is from the cash, not from the deal itself.

Even without a listing, you're either going to have to sell to someone who just wander's by or you'll pay the buyer's agent side of the commission. Otherwise you'll get no showings to lookers who have buyer's agents. You're likely to have to pay some concessions to the seller, unless your market is very hot. So, you're looking at $10K commissions, closing costs, and concessions on the back end.

Now if you have a buyer lined up and ready to buy, maybe the margin is better. In that case, why not just filp it to the as-is. Don't know the MO process, but here in CO that's VERY easy, since the public trustee will issue the deed in anyone's name. And you have 11 (IIRC) working days to complete the deal. If the buyer will pay $135K fixed up, have them pay $120K as-is. That's a nice, clean $20K profit.

If its a rental, you need about $3000 in rent, IMHO, to make this worthwhile. That's $3000 less 50% (see Rental Property forum) for $1500 a month in NOI, or $18K a year. With your $115K investment, that's 15% cash on cash.

To get to your "pitfalls of buying at the auction" question, you want to be sure to do a title search before the auction. You don't want to buy a second. Be sure you know the process. Some states have redemption rights for junior lienholders. Not likely they would buy you out in this case, but you never know. Be sure to look for IRS liens, which can stay with the property.

Property may be occupied. In that case you'll have to deal with evictions.

If this is the first scheduled auction date, there's a fair chance it will be continued. I know one guy here who doesn't even bother considering houses until the list comes out on Monday afternoon for the Wednesday morning auction. He says its a waste of time to mess with them until that point, because so many are withdrawn or continued. Even if they make the list there's a chance they won't actually go to bid.