Unfortunately, it is not quite that easy as you will be bidding with other interested consumers (and firms) on the foreclosed properties. You will also need to have a down payment, proof of funds, and be willing to close within a set time period. The specific sheriff sale details are typically handled at the county level so know the required information before bidding.
Here are several things to consider when bidding on a home during a sheriff sale auction...
Challenges With Sheriff Sale Auctions
Tenants: Most properties being sold at sheriff sales have existing tenants - and some of them need to be evicted, which is costly, messy and time-consuming. One school of thought is that evicting tenants is not a complex engagement – but it is not true, especially if the previous owner is occupying the property. Some investors offer “cash for keys” but that approach often does not work. People in these types of situations at times do not act rationally and making deals is not easy.
Lack of Inspection: In many cases, prior access to properties is not possible in order to conduct proper inspections – which is another big mistake as rehab costs often exceed expectations. When you can have an inspection, ensure you follow the rules or you could be disqualified from bidding altogether.
Competition: Most sheriff auction are often crowded with potential buyers. It was only about 2-3 years ago that these auctions were barely attended - but it is a very different story today. There are some very organized developer groups that routinely visit multiple auctions, They have people doing research and identifying properties, some people just driving around, taking pictures, estimating work, some reviewing title records, etc.
Sheriff auction properties require a lot of patience, careful selection and an extensive review. It is hard work to find good local foreclosure deals so be prepared to kiss a lot frogs to find your prince. Do not rush, take your time to find and try to find the best deals, and with a little luck and hard work your patience will be rewarded.
Other Investment Challenges with Foreclosure Auctions
Complex Rehab: Situations such as changing load-bearing walls, moving a roof to accommodate for larger size bedroom, moving bathrooms, etc. seldom leads to a positive outcome. The expenses usually always exceed expectations as little deviations can lead to unexpected challenges and additional costs.
Small Bedrooms: People don't like them! In houses when additional bedrooms were added, the size was sacrificed and buyers are not pleased. Doing this type of renovation extends the sales process making it more complex.
Challenging Locations: Some areas are not construction friendly and have a very demanding and extensive approval process. Do not think you can turn this around in 3 months unless the property requires only a paint job. Of course, home buying in a specific neighborhood often requires you to drive through the area at different times of the day/night and even stopping and talking with existing homeowners to determine if the area meets your requirements.
Pricing And Timing: Do not try to price the deal higher just because you might lose money or find that your profit margin is not high enough. Market or supply/demand will decide on the right property valuation. Deals that are priced higher take much longer to sell and often investors can lose money.
Contractors: If they are late for appointments, cancel your meetings or do not want to provide a full and detailed scope of work, do not hire them. Cost is very important but so is timing – so find the right balance. Some low-priced contractors manage multiple properties/projects - and their complicated schedules can slow down your progress.
Try to get some sort of a committed timeline with benchmarks and milestones – perhaps offer a bonus for on-time completion and a small penalty if they are running behind. Conflicts and misunderstandings abound, make sure you get a proper contract and a detailed scope of work. This is an absolute must. Do not pay cash because it doesn't matter what they say - one bad apple will “eat up” any savings that you may get.
Many investors have to sue contractors that disappear in the middle of a project with an advance payment, If you paid cash, your position is far from ideal. Get a good lawyer and learn about how to handle these situations in small claims court. Agree on a price and mechanism and the steps to follow. Hopefully you would not need it, but in case you run into problems, you would know who to call and what to do.
If you find a good local contractor - foster good relationships. Sensible and reliable contractors are rare and are worth a premium. You may pay more, but they will shorten your timelines, provide good advice and help you make money.
Sheriff Sale and Foreclosure Auction Takeaways
- Buy properties with tenants
- Buy proprieties without inspection
- Do rehab that is too complex, keep it simple
- Put in small bedrooms
- Offer properties at “wishful” prices
- Hire cheap contractors just because they offer a discount
- Carefully inspect each property with a trusted inspector/contractor
- Hire good contractors, even if not the cheapest
- Have full and detailed construction scope of work
- Have full and detailed contract with each contractor
- Get yourself a lawyer that can help with small court claims
Take your time, do research, find good wholesalers and brokers – there is clearly money to be made investing in real estate. But simple and avoidable mistakes may set you back if you don’t have the knowledge and deep pockets.
Additional Foreclosure Information
Thanks to the team at accolend.com for creating this content.