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| Just wanted to share my recent experience of my first rehab project that I recently sold. I started attending the monthly Trustee auction in my county late last year to learn how it worked, and made my first purchase at the auction in 2/08. There is a lot to learn about the auction process, but the high points are as follows: 1. You must have the funds for the entire purchase price on you which is usually accomplished by taking cashiers checks made out to yourself, and then you sign them over if you buy something. You will not know the exact amount since it is an auction, so take several checks in varying amounts. The trustee will refund the overage to you in a few days. 2. Sign up for a listing service if there is one available in your area. The cost is minimal ($20 a month), but saves hours of research and trips to the county clerk's office so well worth it. 3. Do your due diligence on the properties, or work out a deal with one of the other investors that attend regularly. Most liens are wiped out by the auction if the auction is for a first lien. Beware, that if the auction is for a second lien, the first lien will survive the auction and you will be responsible for it. Tax liens are another instrument that survive these auctions, and some of the houses have large tax liens on them. Look up the history on the houses that you are interested in at the clerk's office, or work out a deal with a title company to do it for you. 4. Houses that are scheduled for foreclosure (auction) must be posted 21 days in advance in Texas. 5. Of the houses that are posted, only about 35-40% will actually be auctioned on the first Tuesday of each month. The rest either get delayed by the owner working something out with the mortgage company, filing for bankrupcy, etc. 6. The postings will show the amount owed, the original amount borrowed, and when the loan was originated. If the loan is FHA insured, the auction will generally be full amount plus extra costs for late fee's, attorneys, etc. since the mortgage company will be reimbursed by FHA if it does not sell at the auction. 7. The opening amounts of the auction are determined by the lending institution, and does not seem to be rational at times, but be patient. My first purchase was a three year old house - 2800 sf in a decent area for $125,000. The tax value was $188,000 and ARV was about $175,000 in the current market. I couldn't see the inside before the auction, but the house looked decent from the outside. I spent $12,000 on carpet, paint, tile, granite counters, and landscaping and contracted out most of the work. I knew that the house was built by a large volume builder, and the structural components (foundation) was under warranty for 10 years, so I didn't have to worry about structural issues inside. I just assumed the worst inside, and that is pretty much what I found. When we finished it, it looked better than most others in the area. It took me about 10 weeks to do the the work, and another 10 weeks to sell the house and close. I listed the house with a realtor at a reduced commission (he is an investor also) to keep the cost down. We priced the house below ARV at $169,000, and sold it for $165,000. Total time for project was about 5 months, and we cleared about $15,000 on the deal after all costs. Not astronomical, but we felt fortunate for our first rehab deal and the learning curve issues involved. We recently purchased another which we hope to do a little better on, but we will let you know :) |
| Scott Phillips Rockwall, TX Sep 30, 2008 |
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