Advice for new investor buying and flipping at auctions

[Andrew Cowles]

I'm looking to buy my first property. My thought process is to buy at a discounted rate at auction and then rehab and sell for profit. Obviously it's not as simple as that. Any advice on what to look at when it comes to foreclosures and how to find good/safe deals at auctions?

[Kevin Bennett]

Hey Andrew,

I buy and flip houses at auctions in Connecticut. I've had greatest success at judicial foreclosures where the lender or bank forecloses on the home due to lack of payments. The process takes anywhere from six months to multiple years. When it does go for auction, it's published on a courthouse website. Auctions are done in the driveway of the residence and the presiding agent is a local attorney hired by the courts. All that being said, here's my top advice for you:

1) The math never lies. If you think you can sell a house for $400k and it needs $100k in repairs, you have to buy it at a price where you can make a profit. There are dozens of calculators on Bigger Pockets to help you out. Don't let emotions get involved. Don't think you can shave costs or boost the sale price since it's a flip. It's a math game. If the math doesn't work, don't waste your time. 

2) These properties are usually in very rough shape. All the ones I've done required over $100k in renovations. I'm a general contractor so I know the costs pretty well, I know the subcontractors and we can do the work. If you can't do the work, find someone who can. You can be the GC if you're good at managing people. If not, hire it out. Be up front with the GC or sub on what your intentions are. If they know you're trying to flip it, they'll help you out. Don't always go with the cheapest guy.

3) Have a realistic timeline. These projects take time. Factor in the carrying costs for a flip such as financing, taxes, utilities, etc. Don't think you can buy a house, turn it around, and then sell it within 30 days. It's not realistic and you'll drive contractors away and ruin your sanity. 

4) Start small. Find an estate sale such as an apartment or condo. Do a small 2 bedroom house. If you can flip a 2 bedroom, you can flip a 3 bedroom. Don't rush in to your dream project or bite off more than you can chew.

5) There is always another house. This is a piggyback of #1. Don't let emotions get involved. If you miss a house because it was too expensive or you didn't have your financing lined up, don't let it get to you. There is always another house. I've missed countless houses, felt bad about it and then one week later a dream house pops up. 

6) Online auctions are crowded. Try to find town tax sales, judicial foreclosures, talk to brokers who usually do estates or bank foreclosures. Local banks often deal with certain brokers. Go to the lending departments of banks and ask who they use to sell properties. Pull the thread. 

7) At the end of the day, you're providing a home. All too often, flip houses are rushed, the craftsmanship is shoddy and profit is the only goal. A family, a couple, kids, grandparents, whoever will be living in that home. Never lose sight of that and don't let the money cloud your better judgment. 

Good luck.

Kevin