Buying houses at auction: This is exactly what I do

 There is nothing like the adrenaline rush of buying houses at auction.

It’s comparable to sky diving and spear fishing, with one exception: You can make a nice living and make a lot of money with a well-conceived plan of acquiring houses to flip and to hold.

As promised, I will tell you exactly how I prepare for upcoming auctions. Here are my action steps:

Subscribe to an internet site

A house in the Atlanta metro area RJ Palano bought at auction.

Subscribe to an internet website that provides all the houses that are scheduled for the upcoming auctions. This is much less expensive and time consuming for you than to do it yourself. The information provided is typically as follows: Owner name, address, original mortgage amount, foreclosing attorney, square feet, year built and number of bedrooms and bathrooms.

Every county has someone compiling this research and it is easy to find.

Pick your houses to look at

I determine, based on the original mortgage amounts as well as the subdivisions, which houses I choose to look at.

I eliminate every type of property I don’t like, such as condos, townhouses, mobile homes, duplexes and bad areas. I prefer houses in the “first time buyers” price range and I know my market for whom I’m selling to. Thus, I eliminate cheap houses and overly expensive houses that don’t fit my profile for the clients I serve.

Go look at each house

A second house bought at auction in the Atlanta metro area by RJ Palano.

I create a drive route and then go look at each house. As I look at the houses, I have to make a fast decision if I want to buy this for a personal investment or sell it to one of our hundreds of clients.  If a house has an opening bid it’s a simple decision for me, “Would I pay that much for that house in this neighborhood?”

I usually reverse-engineer into this answer by asking myself, “Who can I sell this house to for more money then I’m paying and how much can I get for it?”  The answers to these questions will determine if I knock on the door and talk to residents or try to look inside if the house is vacant.

Knock on doors

Yes, I knock on the doors. I want to know if the owner or a tenant resides there and what his intentions are.  If it’s the owner I ask questions to see if he plans to stop the sale by filing a bankruptcy or if he’s trying to do a loan modification. I position myself with the folks in the house as “just the messenger.”  I explain the company I work for sends me around to houses that are being foreclosed and I want the residents to be aware of this and whether there is anything they are doing to stop the sale.  When I say that, they realize I am there to help and I limit my authority by saying, “The company I work for” etc.

Here is another thing I tell them:  “The other reason they send me around is because the company I work for buys houses at auction and a lot of times they rent them right back to the former owner so you don’t have to move. Is that something that could be good for you and your family?”

I say this all in one large exhale so they can’t interrupt me and they simply answer the question.

Another house bought at auction by RJ Palano

By asking these types of questions I control the conversation and I can determine if I should consider this house for purchase. If they are filing bankruptcy, then there is no need to go further, as it will not get sold.

If they want to stay as tenants, we ask questions to determine what they can pay for rent. Most people will give you a low figure that they can pay for rent but I never just let them tell me a figure they can pay. I always ask, “What was your monthly payment when you were paying the mortgage company?”

Typically they will tell me the story about their loan and what they paid and in many cases it was an adjustable rate and once adjusted they couldn’t afford it.  This gives me insights into what went wrong and I usually follow up with, “Could you afford that now?” or “How close could you get to that monthly payment now and be sure you could pay every month?”

By controlling the conversation with questions, each question builds on the prior answers. I can make a determination within 2 minutes if we would ever want to do business with them or buy the house and evict them after the sale.

Additionally, it tells me how much I can pay for the house, if I potentially rent it out to them. More importantly, I ask them to see the inside of the house so I can advise the company what we could pay for it. I explain to them that the price the company will bid is dependent on the rent the owners can pay if they want to stay in the house.

If it’s a tenant, I approach them a little differently and I advise then to hold the rent back until after the auction. Of course I ask them what their rent is, if the house needs any repairs and how long their lease is and if they want to stay.  This information is very valuable to determine your highest bid price and your exit plan.  I get into a lot of houses by being helpful to the occupant as I try to get as much information on the property and occupants so I can make an informed decision.

Look inside a vacant house

If the house is vacant, I do my best to legally gain access. If this doesn’t work, I ask neighbors about the house and what they know.

Do a Zillow search

A house RJ Palano bought at auction in the Atlanta metro area.

I run a Zillow search while I am in front of the house and look for similar sold houses or houses for sale in the area.

Zillow allows me to see what my competitors primarily base their bids on. In many cases the information is inaccurate, as Zillow doesn’t take into consideration neighborhoods that lack recent sales as a result of little or no activity. Zillow can be wisely used when you are negotiating with owners, depending on what the results show.

For me, I just want to see what others are seeing. I make my final decisions based on my intentions with the property of either rehabbing to sell to an investor, or keeping it myself.

Take video

I take videos to remind myself of the house, the neighborhood and then I make notes on the houses on my drive route sheet. Here are some examples of video I shot at the different houses. Here is video No. 1.  Here is video No. 2. Here is video No. 3.  Here is video No. 4. Here is video No. 5.  Here is video No. 6.

Estimate the cost

I estimate the rehab cost and then I give myself a price range of what I would pay for this house at auction.  I do a more thorough search using Real Quest for accurate information on the house and comparable sales at my office while reviewing the videos. This allows me to qualify my opinions and clarify my bid range.

I hope you found this helpful and if I can be of further assistance to you, email me at RJP@BuyCashFlowProperties.com.

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