Auctions! Foreclosures! Surely, these are the very best deals for flipping houses, right?
In this episode we talk about all of the things (and then some) that people always ask me about auction properties:
and I'm sure there's so much more!
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You're listening to the flip houses like a girl podcast where we educate, empower and celebrate everyday women who are facing their fears, juggling family and business, embracing their awesomeness and wholeheartedly chasing their dream of flipping houses. Each episode delivers honest to goodness tools, tips and strategies you can implement today to get closer to your first or next successful house flip. Here's your spiky hair to breakfast, taco loving host house flipping coach, Debbie DeBerry
What is going on you guys, it's Debbie here and I am going to talk to you a little bit about the status of the follow that flip house. So as many of you know, if you've been following along, we went , uh , no. We listed the house on MLS for sale a couple of days ago and this morning we went under contract. So that's exciting, right? Putting the house on the market and waiting for buyer's feedback and agents' feedback is the most painful part of flipping houses for me. I feel incredibly vulnerable. I feel nervous and anxious and Oh my God, what if nobody likes it? And maybe I'm totally off Mark on this. Even if I get raving reviews from friends or people on Facebook, they say they love it, I still panic. It's ridiculous. But I mean it's not ridiculous. I mean, this is, you know, kind of what I do for my life's work and it's what I teach other people to do. So yeah, it is kind of important, right? Uh , anyway, so yep, put it on the market, felt completely naked and got really awesome feedback from people and actually the very first people through put an offer in. So like I said, we ended up accepting that this morning we did a little negotiating and we accepted it this morning. So that's really exciting. So now it's waiting for the seven day option period to expire. So what the heck is that , Debbie? Well, every state is different. And in Texas we have what's called an option period. Meaning basically the buyer pays the seller a certain amount of money and it's totally negotiable. And what the option B does is it by size , the buyer and option period. And again, that's totally negotiable. Now there are typically standard amounts and standard days, it's usually you'll see five to 10 days and a couple hundred bucks. And basically what that buyer is doing is they're buying a due diligence period. So during the option period, the buyer is getting the property inspected. Any inspection that they want to have done, they are doing that during this time period. Anything that comes up on the inspection, they might be getting repair estimates for. And then what happens typically is the buyer's agent comes back to the listing agent and says, Hey, these things came up on the inspection and we want to either negotiate a lower price or we want to negotiate a repair allowance or we want you to make these repairs. So that's what happens during the option period. Now if the buyer backs out of the contract during the option period, they still get their earnest money back. Okay. So that is totally separate from the option money. And like I said, the option money is usually a couple hundred dollars okay. Depending on the price point of the property. Whereas the earnest money is pretty standardly, it's 1% of the sales price. So the option fee is considerably lower. Now, again, if they back out during the option period, before the option period expires, they get their earnest money back, but they don't get their option fee. So that goes to the seller to keep. Now, ideally you make things work with your buyer and you don't come back on the market because it doesn't look good if you do have to come back on the market, right? Buyers think, Hmm , something must be wrong with that house. Or, Hm , the seller must not be easy to work with. Why did that house come back on the market after the inspections? So it's all about perception, right? So ideally you will, as a seller, you will want to make things work with your buyer. Okay? And honestly, I make a lot of nitpicky, what I feel to be nitpicky repairs, right? So they come back with these nitpicky repair requests and it's like, Oh , that's silly, but okay, whatever. Because ultimately this is, wait for it. She's going to say it a relationship business. Okay? You don't want buyer's agents to think of you as someone difficult to work with. You actually want buyer's agents to want to work with you because you're easy to work with because you do make repairs for the buyer because you do want the buyer in the buyer's agent happy. It's a relationship business. Okay? And it's all about your reputation. So if that means I've got to spend a couple grand making nitpicky repairs, but that means the buyer's really happy and the buyers agent had a great experience with me. I'm going to do it every single time. So that's my philosophy and it's worked out pretty well. I'm going to stick to it. Okay. So what I want to talk about today is buying houses at auction. It keeps coming up in a couple of groups that I'm in and especially in our women flipping houses, Facebook group. So let's talk about buying houses at auction. What that means, what it looks like, how to do it. Okay. Now when we talk about buying properties at auction, they can either be foreclosures or they can be another type. Okay? So while it's usually the case, not all auction properties are foreclosures. For example. Some auctions are property tax delinquencies, okay. An auctions are either held online or in person. Some require full payment at the time of the purchase. Others require a down payment. So we're going to go into some more details about various auctions. All right ? Before you go to an auction, before you start looking for a property, the most important thing that you have got to do is you've got to know your specific go property criteria, okay? That's what I teach people inside my coaching and membership program, how to identify the best neighborhoods and property types within those neighborhoods to target. And it's all based on the data, okay? Remember we're giving buyers what they want, where they want it. That's the secret to flipping houses. So know exactly what they want in your market and where they want it. Knowing this information ahead of time for your specific market is going to allow you to quickly make estimates of the ARV and the project timeline. How long is it going to take as well as your potential profit. Okay? So once you've identified those areas and those property criteria, then you can totally start looking at various auction offerings. All right? Now I highly recommend that you always stick within that predetermined criteria, okay? In those parameters that you've already come up with, you've already done the homework, you already know what you're looking, don't stray from it. Don't be like my Chihuahua, who takes off after random squirrels? So focus . All right ? So what you're going to do is you're going to find and then register for an auction. Now there are generally four ways to find auction properties. All right? And each one has its own pros and cons. The four ways include real estate auction sites, real estate professionals, the County courthouse in real estate classifieds. Okay, so let's dive into each one of those just a little bit further. All right , so let's start with real estate auction sites. The leading real estate auction websites include Realty track.com, auction.com foreclosure.com Realty, bid.com hubs Xu , super weird, name.com and bid for the number for asset.com okay, now let's talk about real estate professionals. So these professionals are going to include real estate agents and brokers and third party foreclosure sales agents, also known as trustees, bankruptcy lawyers and bankruptcy accountants are also really good people to engage with when you're looking for properties and opportunities. Okay. You can also find industry professionals just by getting referrals from friends and family and other investors. Remember relationships, right? So network, you can join real estate investment groups in your area or ask your local real estate agent who at their office deals with real estate auctions. Most major real estate companies are going to have agents who specialize in auctions. Additionally, you can also contact bankruptcy attorneys, divorce attorneys, or foreclosure attorneys, and you can find those names and their contact information by doing an online search with Google or Bing or whatever search engine you use. All right, so the third one is the County courthouse. So your local County courthouse has a list of all upcoming real estate auctions within a specific County. You can obtain that real estate auction listing information either online or at your local courthouse website. Okay. Sometimes you might have to go in person, depending on your local courthouse and how things work. Alright , to contact your local courthouse, just Google the county's website address and visit the homepage. It's going to list the contact information. From there, they're going to be able to direct you to their auction page and tell you what auctions are being held, where they're being held, and when they're being held. All right ? Now classifieds. Yes, so there's this thing called a newspaper and it actually lists real estate auctions. So now let's talk about live real estate auctions versus online real estate auctions and what the differences are. All right , so for a live real estate auction, it typically lasts a few hours. All right ? And it's going to happen at the County courthouse or some other public location that they obviously make you aware of where those are going to be held. Now, it's rare, but sometimes the auction can actually happen at the property itself. I know one of my mentees, who I actually interviewed recently on this podcast about her first flip the auction was held at the property itself. So it does happen. All right , and that's how she got her first flip . Generally these are foreclosure properties and not bank owned. Okay. There's a difference for closed properties. Still have the owner's name on the title. If the minimum bid is not reached, then the bank will take back the property and then it becomes bank owned or real estate owned REO. Okay. Now with the live real estate auction, all bidders have to register prior to attending the auction so you can register online and just follow the instructions found on the auction listing. So as part of the registration process, you'll likely be required to provide certified proof that you have sufficient funds to even be bidding on properties. And it's typically a cashier's check made out to yourself that's equal to about 5% of the opening bid price. The auction year usually verifies that you're registered and that you have the correct deposit. So if you win your live auction, you're typically required to pay five to 10% of the closing bid price within 24 hours afterward, you're usually going to have 30 to 45 days to make payment in full and transfer the title. This varies. Okay. So again, you've got to get familiar with how they work. Okay. Because each one is going to be different. Now if you failed to make the payment, guess what? The auction house keeps your down payment and reactions the house. So if you make the down payment but failed to make the full payment, the remaining of the full payment, you'll lose the house. Some live auctions also actually charge interest on the money owed until the full price is settled. Okay. Additionally, some live auctions including tax sales in most counties are going to require full payment at the time of sale. So you have got to know what you are walking into, what the rules are and how to play their game. So let's talk about online real estate auctions. Okay. So these are typically bank owned properties, meaning they've already gone through the foreclosure process and there wasn't a winning bid. So the bank took back the property. It's real estate owned now online auctions, they're either going to happen in real time, like a live auction just online or span the course of days or even weeks, which is usually the case in these longer auctions. Bitters have the opportunity to bid 24 hours a day, seven days a week until the auction listing closes. Real time auctions operate on a bidding countdown clock that's typically two to three minutes. If no one bids after the clock expires, the final or highest bitter is awarded the property. If someone bids within the time allotted, the clock resets. Participants in online auctions can even set bidding parameters which automatically place a bid for them if someone outbids them. It's very much like eBay. Oh my gosh, the silly bidding Wars I've gotten into on eBay. I have a problem. I don't anymore, but I did have a problem about 10 years ago. I handled it basically by not going on eBay anymore. I'm not good at moderation. So , uh , there's that. Okay, so back to auctions. Just like with the live auctions online auctions are going to require that all potential buyers register online through the virtual listing and the deposit can be paid by cash certified check or credit card. The registration process requires that bitters place a 5% deposit before bidding on a piece of property, which usually limits the maximum budget in a virtual auction. For example, let's say you deposit 4,000 before bidding even starts, okay? This means your maximum bid cannot exceed 80,000. Okay? Do you get that? So 5% deposit is required before bidding and that also limits your maximum budget. However, unlike the live auctions, most online auctions are going to require that the winning bidder make that full payment within 24 hours. Okay? Again, be sure to look into the specific website that you're using or the specific online portal or whatever that you are using and know their rules. Okay. If the bitter fails to make payment, obviously the auction house keeps that 5% down payment and reactions the property. Nobody wants that. There are three types of real estate auctions that I want to talk about. When you're looking at real estate auction listings. Keep in mind that each auction has its own requirements for bidding and this dictates the type of properties listed as well as the investors they attract. Now, the first one is an absolute auction. It's pretty standard real estate auction. Okay? The sale of the property is awarded to the highest bidder regardless of its final price, and these can be in person or online auctions. There's no minimum bid amount. The property can sell for any price and usually what's happening is that the seller is in need of quick cash. That's why they use an absolute auction. Banks, for example, sometimes hold absolute auctions to recoup some of their delinquent loans. People in financial distress also hold absolute auctions for short sales. All cash buyers and short term investors. Typically frequent absolute auctions. The minimum bid auction is the second one. We're going to talk about a real estate auction where a seller can set a minimum reserve price on the property is considered a minimum bid auction. If that reserve amount isn't met, the property remains unsold. They can be online and in person and typically occurred during estate sales and sales of property where maybe the owner isn't distressed. Usually minimum bid auctions attract more longterm investors because they tend to have higher sales prices that just don't make sense for short term investors or fix and flippers. Okay, so thirdly, the reserve auction. These auctions are usually done virtually where the winning bid becomes an offer rather than the sale price. The seller reserves the right to accept or reject the winning offer. As you can guess, this is most common when the seller isn't distressed such as with an estate or with a bank. Now typically these can be unattractive to short term investors or flippers given the lack of urgency on the part of the seller. On the other hand, longterm investors may find a good buy and hold at one of these types of auctions. Auctions include different types of sales and it's crucial again, to research this specific type of auction you're participating in prior to bidding. Okay. The type of sale determines whether you can get inside the property before the sale, if the property could have any liens on it, and if there's a redemption period. So let's talk about some types of sales. There's a foreclosure, which is the legal process where a delinquent homeowner forfeits the rights to his or her property and this property goes to a foreclosure auction. Secondly, there's non-distressed Oreos and it's a class of property owned by a lender. Oreos occur when a foreclosure doesn't sell at auction. Like we mentioned earlier in the lending institution, the bank repossess his and sells it at an auction of their own, and then there's a HUD sale. This is by the department of housing and urban development. They auctioned off homes that were foreclosed on by a federal agency instead of a private lender. For example, if a borrower defaults on an FHA loan, then that home could end up at a HUD auction. Lastly, there's a tax lien. This type of sale, it's a little bit different than the others. A property goes to a tax lien sale when the property owner is delinquent on property taxes. As an investor, you're buying the tax debt or the deed to the property. You can collect this tax debt plus interest or you can foreclose on the owner and then take possession of the property. All right , so how do you finance these real estate auction purchases? Hard money lenders, private money lenders and traditional lenders allow investors to prequalify for loans prior to bidding on a house at auction. Flippers commonly use harder private money since it's a short term investment, whereas longterm investors obviously are going to use a more conventional type of financing. So let's talk about hard money and buying at auction. Yes, there actually are hard money lenders who will work with you on purchasing properties at auction. You've got to do your due diligence to find the ones who will do so in your specific area. Financing your auction purchase will require preparation and communication far in advance of the auction date. So let's say you won the auction and now you're going to close on the purchase. So what's next? Generally you pay the winning bid amount and work with the title company or closing attorney just as you would with a traditional home purchase to transfer the ownership to you. For a live auction, the process typically looks like this. You place the highest bid and you win. You pay the deposit amount within the allocated timeframe, typically 24 hours. If using financing, you get the purchase contract and all necessary info over to the lender and then you use a title company or closing attorney to close on the property just as if you were buying a home. Traditionally. Now with the live auction, you're usually required to submit between five and 10% of the winning bid amount within that first 24 hours. Remember we talked about this before. I am reiterating. Okay. Then you're typically going to have 30 to 45 days to settle payment and transfer title. If you failed to do so, you will lose that deposit. There's usually a 10% buyer's premium added onto the sales price. Now where does that premium go? Right ? That's a lot of money. It goes to the auction house, whether it's alive or online that is holding the auction. You're also going to be responsible for all settlement costs and transaction fees as part of the final price. Now, online auctions typically require the full purchase amount within 24 hours. Okay. You get a certificate of sale soon after and then you'll typically have 30 days to transfer the title and own the property. That title transfer is facilitated by the online auction house. However, you don't get a free and clear title. You inherit everything on the title except for the original mortgage. If there is one. Are you hearing that you inherit everything on the title except for the original mortgage if there is one, so when looking to buy a house at auction, you have got to consider the following. First of all, title a house is title is the evidence of ownership. Does the property you're looking at have a clean title. A clean title is one that shows a clear chain of ownership without any legal problems. All of these questions can be answered with a title search. Okay? Do not skimp on that. You can contact and use a title or escrow company to run a title search. You can also call your local register of deeds for title information. Some people choose to do this title search on their own. Go for it. All I know is I trust the professionals to do their job. Doesn't mean they do it right, but I really do trust the professionals so I always hire them to do this. All right . Secondly, you've got to be looking at the liens Aleena's placed on a house when creditors seek to collect delinquent payments, so if a home at auction has a lien, the purchaser of the home might become responsible for the lien. Similar to a title search, a title or escrow company can help you identify any liens on the property. Alternatively, you can search the County clerk's online records or visit the County clerk's office in person. Again, I prefer to hire that out. Thirdly, you want to consider the condition drive by the property and assess its condition as well as the surrounding area. Look, the condition of the house dictates. Among other things, its feasibility is a good fix and flip investment. If the house is in good condition, it will likely go at too high of a price for a flipper to even make a profit. Now you also have to make as accurate of a repair estimate as possible in order to determine your maximum offer. This can be very tricky, especially for beginners who do not have experience or training or knowledge on estimating repairs. If you cannot get inside the property, how are you going to estimate the repairs? Okay, make smart choices. Okay. Lastly, the right of redemption. So what the heck is that? Some States give the original property owner a right of redemption. In these cases, the previous owner has a specific amount of time to keep the house. If he or she pays the winning bid plus interest payment is made directly to the winning bitter stopping the house from being sold. So those are all things to consider when buying a house at auction. The main consideration is this, just because a house is foreclosed or being auctioned in any way does not mean it's a good deal. People sometimes just assume that because it's a foreclosure, it's a good deal. No, no, no, not at all. Frankly, I maybe have seen a handful of foreclosures that are actually good deals in the 16 years I've been in real estate in Austin, so no, that is not the case at all and they require a heck of a lot of due diligence and some guesstimating when it comes to estimating repairs. So frankly, I don't love auctions for beginners that said, you do you okay hip , that's what you're going to do and that's what you're going to get you into action. Go do it. All right . That's it for this episode and if you aren't already, be sure to follow that flip. Go to follow that slip.com and register to follow along on this house flipping journey that I'm taking with two of my local students. Speaking of students, if you are sick and tired of not making any progress and are at the point where yeah, you know what, maybe following somebody else's step by step process and getting support like no other, maybe it's time for that. That is the ticket. Look the support and the team behind you, encouraging you, empowering you, and pushing you out of your comfort zone over and over and over. That's where the magic happens. All right? Go to first, flip done right.com and check out the three step process to learn with me and my amazing tribe. All right? Okay, y'all. Until next time, go out there. Flip houses like a girl. Leave people in places better than you find them and make it a great day. Bye y'all.