Call me jaded, but I never really figured that there were deals to be had at estate auctions. I’ve always figured that bids naturally rise to close to fair market value regardless, so I never really saw the point in getting involved. If I’m only able to pick up properties at 20% of FMV, it does not really make sense for me to bother bidding.

Melissa and I went to an auction today though, primarily because two of the properties for sale were rentals, one of them with an existing lease, and I like cashflow. I started the bidding at $5000 for that one, a 3/2 sitting on 1.1 acres. It was a real stinker. I guess I shouldn’t have been surprised that the auctioneer actually came with an opening price of $100,000. When I opened at $5000, the auctioneer jeered… saying something about how he’s going to have to work for a living today, and some comment about ’sams club shopper’. The folks there had been busting me all day long about our ‘we buy houses’ t-shirts…(we looked like a pair of bandit signs) and the fact that we didn’t bid on the ‘big house’ at all, which at 9.9 acres and a ‘historic home’ went for about $180k.

I stepped out of bidding on the rental at $35k, and it eventually went for $57k. Not too bad considering that it was currently rented at $750/mo. (I was actually very surprised that it was renting that high for what it was!) At $57k, It was still a deal for someone with cash wanting to buy and hold, but for a guy like me… it really limited my exit strategies too much for me to be comfortable. I knew going in that I at least wanted the option to flip it, and regardless of the $750/mo. rental on it… that house was not worth $75k. If I managed to pick it up as winner at $60k… by the time I got through closing…I’d be too close to do much more than buy/hold myself. I like having more options than that.

One cool thing though… Had I stayed in, my cash on cash return probably would have been pretty good, because there was a bank there offering no-qualifying financing with 20% down (i couldn’t qualify for a loan if my life depended on it right now!). If I was able to buy at $60k … that would have been $6k to leave that day… (10% at auction), and then another $6k to close. (plus closing costs) … so for about $12k cash out of pocket, I’d have a cashflow property worth about $9k/yr in gross rents. But I wouldn’t have had much choice other than to hold it… and again… i like having options.

So… Why go to auctions? Well… I actually spoke with the winner. She wound up buying the other rental as well… got them both as a set… Turns out that she is a local dentist, and she was there buying for her own portfolio of rentals. She is a customer for us! She told me exactly what she’s looking for, and where she’s looking for it! Ahhhh…. 3 hours in the hot sun worthwhile!