Overview:
I recently made a $5,000 wholesale fee on a property that I bought at a real estate bank auction.
The foreclosure auctions are not the only place to find great auction deals. Some banks hold their inventory for too long and need to get it off their books and will sometimes hold their own auction after the property has been on the market for a while with no bites. Some auctions have a reserve price and are not as desirable because a certain price has to be met before they have to sell the property. This particular auction was an absolute auction with no reserve or minimums – meaning that whatever came in as the highest bid was the price that the property was going to be sold at – I’ll add that this is quite uncommon.
How I acquired the deal:
I was out taking pictures for a BPO [I’m actually in the process of creating an educational product on ‘how to make money doing bpos’] and I happened to see an auction sign at a property – I had never heard of this auction company before.
I researched them online and realized that the online auction was happening the very next day! I actually put it at the back of my mind, because I just assumed that there would be a bidding war and an owner occupant would win out on this house – bad assumption.
The next day I was knocking items off of my to-do list and I remembered the auction just in time!
65 minutes to go – and this property was only at $15k – to put that into perspective, the lowest property sold in this neighborhood was $51k – and that’s investor pricing.
So I perked up and got attentive. I quickly read the rules on the auction site and signed up as a user.
48 minutes to go.
An investor friend of mine happened to be online and I asked him what he thought about the house. He confirmed that it was a deal and we mulled over a max bid – we picked $37k as our high bid and stuck to it.
3 minutes to go.
Another investor placed a bid and our higher bid was automatically placed at $35k.
O minutes to go.
We won the auction at $35k ($38.5k including the 10% auction premium)
Now it was time to go see the property! Yes, truth be told, we bought it sight unseen. All that we had to go by were a few pictures from the MLS. But how bad could it be?!? PS – This action is not recommended for beginners.
The absolute worst case scenario meant that we would pass on the deal and would only be charged $2,500 to my credit card on file – now I sure didn’t want that that to happen but it wouldn’t be the end of the world ; )
We calculated that it needed $25-30k in repairs.
The property would fly off the shelf at $105k but might sell as high as $110-115k.
My investor pal has some cheaper sources of money than I do, so I was willing to sell the property to him and collect the $5,000 difference as immediate profit.
This was a tough decision for me to make. As every time I wholesale a property for a fee, I leave the potential for a lot more money on the table. But I also lower my risk to basically zero, take a quick payday, and free my time to go find another deal – I can always renovate the next one!
I am also going to list the property for him after it is renovated and will make a commission on the listing as a real estate agent.
The Specific Details of this Wholesale Flip:
If you want to know the details of the deal, this is how it actually went down —- the nitty gritty.
The offer was actually made in the company name that the end buyer and myself both actually started a year or so ago. The plan was for us to quit claim deed the property to his entity and I would be paid $5,000 to give up ownership rights. Doing this is much cheaper than having a separate closing and set of costs in order to transfer title. Well, we actually got the seller to add the end buyer’s company to the contract before we closed, so we were able to deed the property directly to his entity and pay my fee all on the same HUD-1.
Resources for you to go to find the same type of deal:
http://www.rowellauctions.com/ (who I purchased this property through)
http://www.williamsauction.com/
You can register with these online auction sites and actually create a watch list on some of them and they will actually email you when auctions are coming up in your area.
Conclusion:
To me this was a successful transaction. I minimized my time in this deal to less than 7 days from contract to close, put up $5,000 EMD which was returned in less than 7 days, and made a 100% return on that investment by making a $5,000 wholesale fee.
His money funded the deal. I collected $5,000. Everyone is happy.
Have you purchased (or looked at purchasing) an auction property before? Please share what you’ve seen in your marketplace so that we may learn from you!
{ 9 comments… read them below or add one }
That’s the way to do it! Find a property, get it the next day, then wholesale it within a week! Excellent.
We bought our last property through an online auction. We didn’t think we’d get the property because it was in such nice shape already. We were outbid by $10,000, but then the bank decided to go with our offer anyway – maybe because it was all cash? The funny thing is that it ended up taking a lot longer to close the deal after the auction then it did to fix up the property.
Mike, if I could one of these deals per week, it would be the easiest $250k salary ever! Thanks for sharing the deal you got – great that they came back to you – I definitely plan to keep my eyes peeled on the auctions – yet another throwing star in the ninja quiver.
Yep, wouldn’t that be nice! I know an investor here that bought a house from a wholesaler and the wholesaler made $50k! That’s another way to quickly get to that $250k number!
Where are you located Mike? Yes, if making $50k per deal, you need a lot less per year!
I’m in the Los Angeles area. But $50k is not a normal wholesale margin. The wholesaler got the property under contract for $50k less than the list price, then presented it at the list price to the investor. The wholesaler did a double close, so he didn’t quite make $50k, but almost. Not a bad deal, eh?
Mike,
My Buddy Danny at the FlippingJunkie just recently made $50k on a wholesale deal as well – you can check out the deal here – http://www.flippingjunkie.com/2011/the-eighteenth-week-the-50000-wholesale-deal
Yeah, that’s what I need to do – forget this rehabbing stuff!
Great to hear about this fast cash deal, Brooks! I’ve always steered clear of the auctions for the same reason you mentioned. It’s awesome to hear when someone does something that goes against what we typically do and profits from it.
I for one won’t be so quick to just ignore those auction signs anymore. Actually, I just remember seeing a huge auction banner hanging from a 30 story building in downtown Chicago. Got some calls to make….Just kidding. That would be cool though. Then I could post about the 5 million dollar wholesale.
Talk soon.
Chicago – what a cool city! $5,000 – $50,000 – $500,000 – $5,000,000 – zeros are the only difference. I’ve heard this before, but I don’t think that you can truly feel this to be true until you do it – looks like you’ve covered the $50k already – thanks for the comment!