I had time today to visit some of Maricopa County, Arizona's Trustee sales of Foreclosure Auctions. You know this is where you purchase homes for a steal, pennies on the dollar, become a millionare in just 3 months with no money down. Purchase your dream home for less than the price of your car! This is the impression many of us are given by the late night infomercials, local and national media, RIGHT?!?
Well, as your real estate adviser and Phoenix- Scottsdale home investor, I try to visit the foreclosure auctions from time to time to keep well informed. That being said, the auction was a bit of a disappointment for me today. The auctions continue to be attended by a large (getting larger) group of professional buyers for services representing large investors. I've heard the auctions referred to as the last frontier of the wild wild west, well at least of real estate. But these days auctions are very civil, quiet and low-key. The bidders are rarely stressed or excited by the auction as they are rarely representing their own money and generally have specific instructions and limits on their bidding.
The real disappointment is in the prices the properties today were obtaining. For all the properties I researched, the sale price was equal to or more than the price a similar short sale or bank-owned foreclosure (REO) property could have been obtained for in the same neighborhood. The margins between what these homes sold for today and what a well conditioned rehabilitated home will sell for was averaged only 10-15%. When I flip homes for myself, I'm looking to purchase a home with a minimum of a 20% margin and this is for a home that I am fully aware or generally aware of the property's condition. The homes on the foreclosure auction are generally unavailable or only available for a sneak peak via trespassing or owner/tenant permitted entry.
Now some of you may be thinking, a 10-15% profit margin on a home I will only own for 1-3 months is a pretty good investment. Please consider all closing costs of the two transactions, all repairs, all carrying costs, insurance, utilities, etc. are eating into this "profit margin." Many of these homes will be resold with little or no real profit in the end. Many of these investors are purchasing in large quantities to reduce the level of risk and obtain a average profit of less than 5% but one that they can repeat several times in a given year with dozens or even hundreds of properties. For the more common investor, I suggest to you that these auctions are too high of risk and too low of margin for your strategic purchase.
Ok well what if I'm not purchasing to flip, Jason? Good Question (LOL)! An investor may be purchasing a home at foreclosure auction in order to hold as a rental property. This is happening on a large scale these days as the rental market is flourishing to an extent we have not seen in many years. This is a great investment opportunity in Phoenix and Scottsdale but probably not the best reason to purchase at the trustee sale, foreclosure auction. As I stated earlier, similar prices can be obtained by purchasing via bank-owned properties and short sales where you have a non-rushed inspection period to evaluate the home, the neighborhood, any repairs, etc. Reduce your risk and assure a positive return.
What about purchasing for your personal residence? The foreclosure auction or trustee sale is an extremely difficult arena to purchase your personal residence. Generally the list of homes to be auctioned is made available the day before auction with several hundred homes included. The list is narrowed on auction day by a large portion of the property auctions being canceled or postponed. Finally the lender forcing foreclosure will purchase the majority of homes making it to auction. The small percentage of properties with a live, active auction will be sold to a number of professional services representing numerous investors to whom this is their profession. The purchasers have generally never seen the home except for a drive-by and are rarely aware of the home's total condition. Purchases require the purchase price be paid in cash the following day, with a $5,000 or $10,000 cashier's check at risk the day of sale.
For most investors, the appeal is to find the rare deal at the auction that would not be achievable in the typical open market. Now these foreclosure auction purchases do happen. Just be be prepared to endure 
weeks/months of daily auctions, each containing hundreds of potential properties for your chance to outwit the professional services for this opportunity. For many, this is not the best investment opportunity. For you, it might just be a great fit.
Contact me today to discuss various real estate investment opportunities in the Phoenix Scottsdale market. The trustee sale, foreclosure auction, is just one of many potential purchase arenas that are available to you. Seek out a competent real estate adviser that understands all of these property types and purchase arenas in order to complete the right purchase or sale for you.
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