I went to my first auction! If you were following my updates on Twitter, you could probably sense some of the excitement!

It was amazing that we landed another property, just days after Closing on Our First Rental Property.

Auction Atmosphere

The auction took place in a conference room at a hotel. We grabbed seats in the third row, so we’d be right in the middle of the action. As the room filled up, they took down the divider to the next room and added more chairs.

They did a “mock” auction so everyone would feel comfortable with the bidding process and the “chant” that the auctioneer uses. It was a little intimidating at first, but once we got used to it, we were fine. It actually became entertaining to watch the auctioneer try to get people to raise the bid, with little comments thrown in… all while keeping his chant going.

The auction moved very fast, just as we expected, so I’m glad we were prepared with our lists and maximum offers for each section.

If you’re worried about going to an auction and “accidentally” buying something, we saw it happen. Someone made a mistake on a property. However, there are bidding assistants walking around helping and they let the person retract their bid immediately.

Bidding Process

The properties were divided into sections based on developments. Each section had multiple properties listed and the highest bidder got to pick their property. Then anyone else that wanted one at that same price could do so. If there were still properties left, they would start the bidding again.

You had to keep track of which homes were already taken, so you’d know which one you wanted once you won. We prenumbered each set of homes and condos based on the leases already in place, from highest to lowest.

Calculating Our Maximum Bids

Our maximum bids were calculated based on being able to break even with the properties. We had ideal bids that would provide some cash flow, but had a maximum in mind just in case we got caught in a bidding war. Our maximum bids were all 40 – 60% of the assessed values, so I didn’t even know if we’d be in the game at first.

When we saw the first two properties go for 65% of assessed value, we knew instantly we were going to be able to bid at some point during the day.

Our Losing Bid

During the section that had the houses we wanted, we were outbid by $2500. The bidding came down to us and another person. We went back and forth starting at about $140,000. Our maximum bid was $149,000 and we gave our final bid of $150,000. The other bidder offered $152,500 and we passed.

The auctioneer actually teased me a little before he declared it sold, asking if we were really going to let a property go for a difference of $2500. It was all math to us since it was an investment property, so we passed, but I could easily see how you’d go above your maximum if it was a house you wanted to live in!

We did submit paperwork to be contacted if for some reason the winner backs out before closing, but we’re not expecting a phone call.

Our Winning Bid

By the time we got to another section with some condos we were interested in we had a bidding assistant that kept looking to us to jump in, as we’d been doing throughout the auction. It was helpful because we could communicate with him as we went what we wanted to do.

There were 20 condos and we were able to win the second bid and scoop up one of the condos for $60,000. We got our first choice, which was the condo with the highest rent already in place.

Our maximum bid was $65,000 so we were really pleased when we won. The condos went anywhere from $56,000 to $67,500. We considered buying some more at $56,000, but our maximum offer was only $50,000 for the lower rent condos, so we passed…. which was really hard!

We then proceeded to the contract room to fill out paperwork and meet with the bank. We’ll close in about 2 weeks once the title work is done. Closing costs will be about $900.

After we were done, we were treated to a free lunch for all the winning bidders!

The New Condo

The condos were brand new 1500 square foot, 2 bedroom townhouses. They’re in a small bedroom community nearby. About half the properties for sale were already leased.

The condo we won was $60,000 plus a 10% fee to the auction company, for a total sales price of $66,000.

There was automatic financing available for a 30 year fixed rate at 5.4% if you put 10% down. No brainer!

The condo is assessed at $134,900. Comparable properties are currently listed at $139,500. Recent sales were in the range of $130,000 to $150,000. So, we got it for less than 50% of assessed.

Here’s how the numbers look on a monthly basis:

  • Rent: $895
  • Mortgage payment: $334
  • Taxes: $225
  • Condo fees: $120
  • Management, maintenance, reserves, etc: $135-$180

Since it’s brand new it will have very little maintenance cost and most of the other costs are covered in the condo fees. It should cash flow between $35-$80 to start off with.

The numbers aren’t ideal, but it was a quick way to build some equity with a tiny investment.

Quick Sale

Our friends who attended the auction too, also picked up one of the condos in the same complex we did. They received an offer to buy their condo while they were in line to sign contracts from an investor that bought the other three in the same building. Talk about a quick turnaround! They exchanged business cards, and will try to work something out soon.

What We Learned

Consider all properties. Prepare to buy or do research on all the properties at the auction. We planned to just bid on the houses, but found out the night before that the condos would allow leases. That opened up an opportunity we had not planned on.

Bring your supplies. We put together numbers in an hour before the auction for the condos, and had to place some phone calls to verify tax info. It was good we brought a laptop and cell phones.

Stay for the entire auction. About half way through the auction, they went back to one of the properties in the first section. Apparently the deal fell through, so they reopened the bidding on it, starting over. By then, I think many of the people had left that were in the market for those properties. So it paid off for whoever got the property the second time around, even cheaper.

Stick to your numbers. The auction was really exciting! When we got home, I actually had some buyer’s remorse… remorse that we didn’t buy more! But we stuck to our predetermined numbers, so I was happy.

Action Plan

Now that we landed a property that has instant equity, we are trying to decide if we will hold it, sell in a few months, or get a HELOC to fund another investment property.

We rarely have auctions in our area, but there’s another one planned next month. I’d love to go, but I think it will depend on when our new baby decides to make an appearance!






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Comments to An Auction Experience to Remember

  1. Thanks for writing this – it’s interesting to read about something I haven’t heard much about.

    I have to admit that I’m VERY skeptical about the assessed values – why on earth are they selling these properties for $60k if they can get $100k for it? Even banks who foreclose on properties aren’t that dumb.

    Four Pillars

  2. Very interesting and informative! Thank you very much for the post.

    How did you find out about the auction? What information did you have ahead of time (locations, prices, inspections, etc)? What would you have done differently if you had to do it again? Am I understanding correctly that you put 10% of $66,000 down with an expected gross annual cash flow of $10,740 from rent? If so, congratulations!

    Adam – NPF

  3. Sounds like you are buying new properties via auction. Would you buy an older property? Aren’t there a lot of risks because they are “as-is”? Is there still an inspection process? What about liens on the property? Do you inherit those as well?

    Just wondering. We’re considering our first adventure as landlords, but haven’t really considered auctions at this point.

    Michelle

  4. @ Adam: We heard about the auction by word of mouth, so nothing fancy… it just happened to fall into our lap!

    It was actually an auction to unload properties from a builder that got behind on his taxes, so we had access ahead of time to view the properties, and get all tax information and sales information.

    If we had it to do over, we’d prepare to bid on all the properties.

    Yes, you got it right: 10% down on $66k and gross rents of $10,740!

    Madison

  5. @ Michelle: Yes, the properties were all new. The builder that sold them off was reducing his inventory to pay delinquent taxes.

    Part of the auction and closing deal was that the builder will pay all the back taxes, so we will get a clean title (and title insurance).

    I would have never considered an auction since I’m so new to real estate investing, but this was a unique situation.

    I don’t think I’d be ready to do the kind of auction where you buy the property as-is without being able to see it.

    Madison

  6. Cool! I was outbid on a $600,000 property that went for $300,000 back a few years ago. I just didn’t have that much available to me at the time, but the house resold a few weeks later for more than $700,000.

    I used to buy horses and cattle at auctions. You gotta be careful about any little scratch or twitch. The auctioneer might think you’re bidding.

    When I was in college, I would attend postal auctions and would make more money in 2 weeks than I did all summer at a typical college job! On one deal I bought 6 five piece sets of leather luggage for $10/set and resold them for $150/set by taking out one ad in the newspaper.

    There wasn’t a real auctioneer at a postal auction. You just have a placard with your number on it and the “auctioneer” says 5, 10, 15, 20, 25 … until there’s only one placard left in the air. Kinda boring compared to the livestock auctions.

    Ron@TheWisdomJournal

  7. Excellent post! I look forward to more details as you go with this property as well. How about some pictures?

    Joshua

  8. Congratulations, sounds like you got a great deal. And with a new condo property, your maintenance costs should be very low. Will you be managing it yourselves? (I’m guessing it’s within driving distance?)

    I would love to be able to dip my foot into a rental for less than a $10k commitment!

    Jonathan

  9. Great Article! It’s nice to see what’s possible and you’ve outlined the steps clearly.

    I was looking at auctions a couple of years ago and a realtor told me what a “hassle” they were. Seems like they are pretty straightforward as long as you do the upfront research and have the cash.

    Thanks so much for sharing this, I hope to refer to it when we downsize in a year or two.

    JannyPi

  10. That’s exciting. Never been to an auction before. Even crazier that they do this for properties. Did you see the property before buying? Wow. Might like to try that someday, though!

    MoneyEnergy

  11. Congratulations on your second purchase. This one sounds like it has a little better numbers. I think in todays economic enviroment the appreciation potential is tied to the ability to increase rents over time. The income component may be more valuable at this time. Best of success to you and your family.

    Seb

  12. Very interesting article. I am not sure I would buy onesey-twosey condos for rentals. But it sounds like the closing is pretty simple — almost tempting.

    LC

  13. Very interesting post. I’m really glad you shared it with us. There have been a few condo auctions around DC, but nothing quite so cheap. What’s scary is that there are foreclosures in the ‘burbs that are listed on the market for $60K, but the HOA reserves are trashed so it would be hard to make positive cash flow with mortgage and condo fees combined.

    mapgirl

  14. You submitted this to the Carnival of Real Estate. I think I’m probably going to include it, but if these people do business like the auctions around here, you got taken. You might want to read this article of mine

    http://www.searchlightcrusade......uctio.html

    Dan Melson


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