 |
|
|
Six Tips For Buying Properties at Traditional Auctions
By Kevin Norton
Historically, it used to be the case that auction properties were normally found in the inner city. Due to the current downturn, we're now seeing suburbia being hit. This means that more properties across the state are going to auction, especially on the Cape where people bought second homes and can't afford to keep them.
Buying properties at auction isn't for the faint of heart. I've been doing it for 13 years, and I still have days when I find myself hesitating to pull the trigger on a deal.
Auctioned properties involve a great deal of risk because you don't have access to the property, you can't do a traditional appraisal, and you sometimes find out after the fact that the property needs the septic replaced to the tune of $25K, blowing your investment strategy to hell and eating away at your expected profits.
However, you can pick up some pretty good deals if you know what you're doing. Here are my tips for investing in auction properties.
* Next 37 17 investors only!
- Conduct thorough research - Because you can't do a traditional appraisal with auction properties, you need to do "shoe leather" research, starting with town hall. You'll want to visit the following departments:
- Assessor - Look for taxes owed on the property or if it's in Tax Title. Also ask for a MLC (municipal lien certificate), which states if any liens have been put on the property. (Some towns charge $25 for this document.)
- Building department - See if any code violations exist or if permits have been pulled on the property for prior work that was completed legally, properly inspected, and signed off.
- Health department - Again, ask about any violations (i.e. septic, termites, trash, lead paint, etc.).
Also visit the police department and ask about any violations or citations for family disputes or disturbances. If the property is a multi-family, this will give you a good idea about what kind of tenants live on the property.
Your last stop should be the property itself. Walk around and if you feel comfortable enough, knock on neighbors' doors. Many will come out and start talking to you. You'll get all kinds of information about the property and the current owners and/or tenants - "Oh yeah, the police were here every three weeks" or " I know for a fact they have termite damage, that the house has been vacant for some time, and that the pipes froze up over winter."
To keep things easy and to save drive and research time, I suggest you limit your focus to properties within a 20-mile radius of your targeted market area.
- Call before you go - Auctions are frequently cancelled or postponed at the last minute (due to the owners filing bankruptcy an hour before the auction), so it pays to call the auctioneer 15 minutes before the auction is scheduled to take place.
- Arrive at the auction five minutes early - Auctions can take place literally in a few minutes depending on who shows up. Experienced bidders will often tell the auctioneer to waive the legal readings - speeding up the process. I've arrived at auctions ten minutes late only to find the auction is over and done.
You should also note that auctions take place weekdays 9:00 AM to 5:00 PM, never on weekends.
- Know when to hold 'em - The biggest mistake rookie bidders make is placing a bid too early in the bidding process. To learn how the pros do it, spend a month or two attending auctions and watching the proceedings. Get to know veteran bidders and auctioneers.
Also note that experienced bidders usually wait until the bank representative makes a bid - often called the "strike price" - and then place a bid a few cents over it. Some auctioneers, however, will stipulate bid increments of $50, $100, or even $1,000. Others will let you bid only $1 more over the Bank's final price.
- Know when to run - When it comes to auctions, you need nerves of steel, especially since you have to train yourself to walk away from a $5K or $10K deposit. What usually happens is that the winning bidder will hear from the property owner after the fact that the property needs serious work or a new septic system.
Or, winning bidders get scared off by the owners - they'll learn that the present owners will be nothing but trouble - and will walk away from the property, leaving the deposit on the table.
In cases like this, you'll want to build a small network of investors who specialize in these types of situations. For example, I recently had a high bidder ask me if I wanted to take over his contract because he realized he couldn't finance the deal and started having second thoughts.
Most investors will sign the Contract and next to their name write in "and/or assigns," which legally allows them the option of assigning their bid to another party.
- Know your market - Another reason for keeping a tight target area is because knowing your market is key and every market is different. Get to know your market by reading the local newspaper, attending a few town hall meetings, and walking the neighborhood. Note which streets are being upgraded or how other streets may be impacted by the town's limited budget or lack of tax revenue. All of this information will help you determine value for auction properties.
Buying properties at auction is a fulltime job and it's not for people uncomfortable with risk. To be successful, test the waters first by attending auctions and watching the proceedings, getting to know the players, and finding the right market. You may decide that auctions aren't for you - or you'll become like many investors who enjoy the thrill of the hunt.
Kevin Norton is the VP of the REO division for Daniel J. Flynn and Co, a Quincy, MA real estate company that provides auction and real estate services. Kevin can be reached at 617-479-9000 x 115 or by email at knorton@djflynn.com.
Did you like this article? You May Also Like:
 |
Interview with the Expert: What is Hard Money and How to Use It
Dan Burke
If you're new to real estate investing, you've probably heard the term "hard money" but have no clue what it is. Simply put, "hard money" is short-term financing. In this month's Interview with the Expert, Dan Burke explains how hard money differs from conventional financing and why hard money financing gives you a better advantage when dealing with really hot deals or bank short sales.
|
 |
Interview with the Expert: Incorporate Real Estate Into Your Financial Plan
Judy Carryl-Young, Ameriprise Financial Services, Inc.
Financial planners often see clients who want to put everything they own into real estate . . . sometimes with disastrous results. In this interview, licensed financial planner Judy Carryl-Young explains why single asset allocation may not be the best choice for you and how you can maintain your financial security by keeping a diversified portfolio.
|
 |
Feature Article: Keep Your Title Clean: Three Strategies for Preventing Title Problems
Jacqueline Fitzgerald-Boyd
Did you know you can create some serious Title problems when you transfer Title on your own? And, did you know that a Title problem can sometimes exist for more than 20 or 30 years without ever being found - and then bang, one day this hidden ticking time bomb becomes your major Title headache? It's true. Title expert Jacqueline Fitzgerald-Boyd talks about common Title issues and how you can alleviate them. (Hint: Title is more than simply a piece of paper.)
|
 |
Legal Corner: Do your Homework before Investing
Suzanne Brunelle, Portnoy and Greene, PC
So, you heard you could make a financial killing or find your dream home buying property at foreclosure? That may be possible, but first you need to beware the pitfalls of the novice and, as my father always said, "Do your homework"...
|
 |
Feature Article: 4 Things You Probably Don't Know About Credit
Deborah Siegel
Credit is the starting point from which lenders of all types and sizes will decide whether or not you are a good risk. But it's not as obvious or as straight-forward a process as you may think. Read on as Debbie Siegel explains what really goes on behind-the-scenes.
|
|
Legal Corner: What to Know Before You Buy: The Legal-Ease of Foreclosed Properties
Suzanne Brunelle, Portnoy and Greene, PC
Over the past ten years, attorney Suzanne Brunelle of Portnoy and Greene, PC in Newton, has handled thousands of foreclosures. Her advice is simple: find out as much as you can as early as you can about the property that interests you...
|
 |
Legal Corner: Banks are willing to work with investors to find equitable solution
Bob Tenney, Cunningham Machanic
Bob Tenney, attorney at Cunningham Machanic in Natick, is on the frontline of the foreclosure process. Tenney and his firm review claims by lenders to review properties for foreclosure. If proper conditions are not met, they are also the folks who send out demand letters—the step that begins the foreclosure process for the homeowner. "We send the demand letter and give the homeowner time to reinstate their loans. If that doesn't happen we proceed with the foreclosure," says Tenney...
|
 |
Interview With The Expert: Selecting and Working with a Home Inspector
Flemming Lund, President, Apex Home Inspection
A critical aspect of purchasing a property is making sure that an inspection is completed by a qualified and licensed home inspector. Flemming Lund, President of Apex home inspection in Sudbury, Mass, covers everything from finding and working with an inspector to the idiosyncrasies of older homes.
|
 |
Interview With The Expert: Sonia Stingo
Sonia M. Stingo CPA, PFS, Livingston & Haynes
Everyone knows that If you own investment property, you may be eligible to deduct loses on your tax return. When?, Why?, How much?, Under what circumstances? ... those are much more complicated questions. We caught up with certified tax expert Sonia Stingo this month, and asked her to review some of the basics...
|
 |
Success Strategies: Buying and Renting a Vacation Home - Making it Work
Joan Talmadge
Renting a home has become a very popular vacation alternative; an ongoing trend which continues to drive up rental rates. If you're considering making one of your investments available as a vacation rental, you won't want to miss the five tips offered by vacation rental expert Joann Talmadge.
|
|
|
