There seems to be more and more buzz out there about buying up foreclosed homes at the courthouse auction sales. Tales of properties purchased for pennies on the dollar flipped into $100,000 profits overnight are all around. Beginning to sound like a Carlton Sheets advertisement yet?
These sales do happen and it is possible to snag one of these properties at a rock bottom price if you know what you are doing. Will you realize the $100,000 like I mentioned above? Not Likely. If you are not a professional investor with expert knowledge in today’s Real Estate Market as well as the ins and outs of the legal process you are headed down a VERY DANGEROUS path.
For every 25 properties you are interested, 3 or 4 may actually make it to the auction at the courthouse steps. If you are as wise an investor as you think you will already know that the mortgagor can work something out up to the moment the auction begins, thus stopping the sale. Of those 3 or 4 that make it to the auction block, you may have a shot at placing the winning bid on 1 or 2. Remember, not every bank is willing to just let these places go for ¼ of what they are owed.
Let’s be optimistic and assume you did purchase 2 properties for pennies on the dollar. I assume you already know how much the back taxes are and if the 2nd and possibly 3rd lien holders were wiped out. Then there is the matter of other liens that may not even be filed and you still have not seen the property. That’s ok, you can see it when you go to evict the angry homeowners. Make sure to ask nicely if they will refrain from trashing the property when they go too.
I can tell you that the cost of research on one of these homes is around $1,000. So you have already spent $25,000 (IN ONE DAY) researching properties, $23,000 of which was wasted money. You have purchased two properties with a combined value of $250,000 for a purchase price of $100,000. After you add on the back taxes, wipe out all other liens, evict the prior owners, repair the damages and replace the stolen appliances you now have $175,000 into the properties. Putting them on the market for quick sale will cost you another $20,000 give or take a little.
At the end of the day you have made a profit of around $55,000 IF you can sell the properties for full asking price AND in a matter of days to avoid carrying costs. This scenario assumes everything goes well. If you mess up you could be out $100,000 in the blink of an eye.
So if you have $25,000 a day available to do the research on properties that may never make it to the auction and are comfortable enough to place your bid with the chance you could lose $100,000 if a lien was overlooked or if the legal process was off by just a hair, make your move. I don’t know about you but I will just head to Las Vegas and lose my money one quarter at a time and at least have some fun. And who knows, I may just be the next big winner!!!