How do you find the houses you buy?
This is a frequent question for us. Today, we are answering.
There are three avenues we pursue to acquire houses.
- Word of Mouth
- Direct Marketing
This post, however, is all about auctions.
The Background Story
Before we dive in, let me talk a little bit about my (Uriah’s) background. I worked for a publicly traded hedge fund for 3.5 years in Acquisitions and Construction Management. I had buying parameters and purchased homes at the NC real estate foreclosure auction at my own discretion. Additionally, we purchased homes on MLS and direct from homeowners in a “for sale by owner” fashion. While at the aforementioned company, I obtained my real estate license and studied our market here in Wake County and the surrounding areas (Raleigh, Cary, Durham, Apex, Garner, Knightdale, Angier, and Fuquay Varina, among others).
The result produced experience in over 800 as-is real estate transactions and construction management for near the same. Given this background, I developed the unique ability to underwrite properties with great speed and construction management skills which have place me where I am at today. Believe me, it would happen for you too after that many properties. Practice makes perfect.
North Carolina Real Estate Auction
**In this post, as in all of our content, we simply share in our own experience and opinions, this information is not to take place of legal counsel.
The North Carolina Foreclosure Auction Process: How it Works
When a homeowner misses 3-4 payments, the foreclosure process begins. Several events mark the impending event, but eventually the property will be listed on a trustee’s website. That is, unless, they sell it first. A property can still be sold, up until the 10th day of the upset bid period.
Sometimes a property will present with an opening bid prior to the auction date and sometimes it won’t. Foreclosure auctions happen at the courthouse and are auctioned off to the highest bidder. In NC, trustees require 5% of the purchase price or $750, whichever is higher. The bidder must come prepared and will not be permitted to leave to get a check, or the trustee will start the auction over again.
Tips for Buying Houses at Auction: The Real Estate Investor
Upset Bids, Oh Upset Bids!
North Carolina’s real estate foreclosure process is one of the few that require a 10 day upset bid period. An upset bid period is the amount of time after the original auction date where individuals can continue to place bids on the property.
Once you “win” an auction property, your bid is placed into an upset period of 10 days. During this time anyone may come down to the courthouse and pay 5% more than you and put down their 5% down payment. This starts the 10 day process over again.
Time is Money
As we all know, time is money, and you should probably have a lot of it. With the ARV of most houses in Wake County in the 200k-300k range and the requirement of 5% down, it adds up. The whole process is time-consuming and competitive. You will, by virtue of real estate investing’s popularity, be paying top dollar for every investment house you win, because everyone wants to be a real estate investor. Develop an efficient process for underwriting that works for you and be consistent.
Not for the Risk-Averted
There is a great amount of risk involved in buying houses at auction. People can’t legally enter the property (unless invited) and are trespassing if they do. This means you are buying a house you haven’t throughly inspected (although I do suggest an exterior inspection.) Additionally, auction houses are usually occupied, so after you do win one, you will need to begin the eviction process, preferably the day after closing. Talk to your attorney and make sure you know their costs to accomplish this. I have seen it take between 6-8 weeks to gain possession.
When Bidding, Set Your Price and Hold To It.
This is where new buyers loose their shirts.
Expect emotion, but don’t be controlled by it. Auctions are not for the faint of heart nor emotional buyers. I have seen new buyers come down after watching one property on Zillow for the last three weeks, doing all their homework on that one property all to have seven other people doing the same thing. By the time the bidding is over, according to my numbers, they will be lucky to break even. The reason? The didn’t have a max bid amount in mind and were too emotionally invested in the house to lose.
Do the Research, Cover your Basis:
Check each file to insure the book/page number being foreclose on is a first mortgage and not a second. If win the bid on a second mortgage, you just bought someone’s debt and would still have to pay off the first mtg in order to actually own the house. Additionally, have your closing attorney check every house you are going after for IRS liens. These can ruin what you first thought was a great property.
In Conclusion …
Before you decide to go this route, you need to understand there is potential that buying houses at auction will be a huge waste of your time and resources. If I can be honest, there are often dry seasons, when I have been at the courthouse multiple times per week over the course of several months and walked away with nothing. With all the competition involved, it may not be a good use of your time, but again, that’s up to you. A good amount of dedication should, eventually, land you one.
Hope you found this informative and helpful. Best wishes in all your endeavors.