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.
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.
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.
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.
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!