May’s Jaw-Dropping Foreclosure Auction

What a difference three years can make!  At the May 2010 foreclosure auction, there were only 5 real estate investors on the courthouse steps bidding on 186 foreclosures advertised for sale in the legal section of the newspaper.  Two days ago, at the May 2013 auction, there were over sixty investors bidding on less than forty properties!  Good golly, Miss Molly!

Here’s just one example of how ridiculously high the bidders are pushing sale prices on the steps: A house at 15 Waters Edge in Acworth, Georgia had an opening bid of $57,500.  A house a few doors away sold at auction last summer for around $85,000.  The two houses are similar to each other. 

Our maximum bid price for 15 Waters Edge was $70,000.  The house needed a shave and haircut rehab – about $12,000 to bring it into perfect condition.  As the property was cried, the top-bid price quickly zoomed north of $100,000 – then climbed to $125,000!  When someone bid $150,000, my jaw hit the ground.  The winning bid on the property was an astronomical $168,000 – $30,000 more than the property’s current fair market value!

What wise investor overpaid by so much?  It was a hedge-fund buyer.  We think their purchase price was absolutely insane!  (NOTE: You can see video of two of the properties auctioned in May on North Georgia REIA’s Facebook page.)

For the past month, we’ve written a series of columns talking about the rapidly changing real estate market.  Last night, it was the discussion topic at our monthly real estate investors meeting.  Here’s what we learned: 1) The foreclosure auction is no longer the best place to find the most profitable deals – the low-hanging fruit is gone!  2) These days, meeting face-to-face with sellers is the new game in town.

Buying at auction requires no deal-structuring ability whatsoever – just a big dang hammer.  In other words, when buying on the courthouse steps, it’s an all-cash sale.  Meeting with and buying from sellers is a whole new ballgame that requires you to have many tools in your deal-structuring toolbox.

What deal structures will work best in today’s market?  Here are just a few: Pre-foreclosures, Subject-to Deals, Sandwich-Lease Options, Owner-Financed Deals, and Lonnie Deals.

Folks, getting face-to-face with sellers is always a great way to find motivated sellers and structure creative win-win deals.  Why?  Because life happens: Marriage, divorce, birth, death, promotion, termination, transfer, etc.  People going through an unexpected change may find themselves holding a real estate problem – a problem they want solved quickly.  It’s an investor’s job to bring solutions to the table.

Where’s the best place to learn how to creatively structure deals?  Meet regularly with other like-minded real estate investors.