Can You Make Money Buying Foreclosures?

This is a delicate topic to write about.  On one hand, as a real estate investor and teacher, I want folks interested in real estate investing to know what’s possible at foreclosure auctions.  On the other hand, I’m concerned about looking like a pudknocker who’s profiting from someone’s misfortune.  In the end, you get to decide whether I’m a teacher or a pudknocker.

Last week’s column was about how we prepare for a foreclosure auction.  This week, we’ll look at whether there’s money to be made at foreclosure auctions by reviewing our last three deals.

At the August 2011 foreclosure auction in Bartow County, we were the high bidders for a property on Wilderness Camp Road in White, Georgia.  The lender’s opening bid was $79,268.  We bought it for $79,269.

The property was in great shape.  After doing a quick clean-up and making a few repairs, we put the property on the market for $138,850 – well below its appraised value.  It immediately went under contract.

We sold the property on October 25 for $138,850 – our asking price.  The net profit on this deal was $42,704.84.

At the September 2011 foreclosure auction, we were the high bidders for a property on Waterford Drive in Cartersville, Georgia.  The lender’s opening bid was $155,000.  We bought this property for $155,001.

The Waterford Drive property needed some rehab work.  We put in granite countertops and new carpet, painted, bought new appliances, landscaped, etc.  All together, the rehab cost about $21,000.

We put the property on the market for $238,850 – well below its appraised value.  The property went under contract almost immediately.  We sold it on October 31 for $240,000.  The net profit on this deal was $49,461.00.

At the November 2011 foreclosure auction, we bid on a property on Kings Camp Road in Acworth, Georgia.  It was a nice three-bedroom, two-bath home not far from Lake Allatoona.  We were the high bidders at $76,001.

Now comes the crazy part.  We sold the property ten minutes later for $88,000.  That’s a net profit of $12,000 in ten minutes – or $1,200 per minute!  I doubt Charlie Sheen’s hookers make this much!  (I know, this isn’t politically correct – I don’t mean to offend any hookers out there!)

When you do the math, we’ve netted a whopping $104,165 on these three deals. 

Now let’s cover our bases.  Did Kim and I pocket all of this money?  Nope.  We usually have partners (Private Money Lenders) on our deals.  Our partners put up the money and we put up the know-how and the deal.

Can buying at the foreclosure auction be risky?  Absolutely.  You need to learn how the foreclosure process works from the ground up and you’d better know your way around the Deeds room. 

Remember, when you buy a property at the foreclosure auction, it’s an ALL-CASH transaction – there’s no let-me-run-up-to-the-bank-and-apply-for-a-loan stuff.  It’s a cash-on-the-barrelhead, cash-for-the-merchandise purchase.

So to answer the question: Yes, you can make money buying at the foreclosure auction – but you’d better know what you’re doing!

Bill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.