In my day, we went out and reviewed a hundred properties just to close one deal. It took weeks, even months, but this was one of the best teaching tools I could have encountered. By looking at all those deals, I learned to narrow down exactly what I was looking for and what I was willing to pay when it came to a real estate property.
One of my employees came in a few months ago, all excited because she’d just bought a house online … through an auction! Of course, I know a little about real estate auctions and have stood on quite a few courthouse steps to listen to trustee foreclosure deals. Mainly, however, I was in attendance to get educated about that avenue for finding investments, not to bid.
I frowned at my employee and gave her my two cents of wisdom about dangers to watch out for when buying a property on the court steps. The main danger is not being allowed to see the property, which means you can’t conduct your own due diligence. A second danger, especially for someone like me, is getting caught up in the bidding process. It’s hard not to get focused on winning the bid rather than getting the best deal.
My employee just gave me a smile with a hint of smirk. “Robert,” she said, “that’s not how this works. This is an online auction.”
A good friend and CEO of Rich Dad Coaching was telling me about Auction.com. That site hosts the biggest online auction for real estate in the world, with over $26 billion in sales since 2006, and is where my employee bought the investment property she was telling me about. I had to know more, so I recently sat down with her to learn about this new way to buy property.
It turns out she used Auction.com to review hundreds of deals. What would have taken me weeks or months to accomplish in the traditional way took her days, even just hours. And every property at Auction.com is for sale; it’s not like looking at properties on Zillow. It’s not window shopping—it’s shopping at the frenzied discount of blowout sales!
I grimaced when she told me that she bought that investment property locally and sight unseen. But then she explained: She bought the investment at such a great deal that the land the property sat on was worth more just by itself than the bid price they paid for it. Turns out that you can go look at the property and do your proper due diligence, but in this case it simply wasn’t necessary.
She invested in that property for $35,000 and after fixing it up, she has seen it revalued at $219,000. With margins like that, cash flow isn’t going to be too tough. She bought the property when it was a dilapidated state and so had to put more money into it, but the margins remained huge and the whole investment ended up being a no-brainer. She already has renters in the property with cash flowing in every month. She’s also already submitted a lot more bids on Auction.com.
She had title of the property just one week after submitting her bid. I’ve never had a property sale go so fast. And she did the whole deal from her computer. She did research, found financing, got it bought and paid for—all from her desk.
Now, it’s not all easy. Auctions, just like any investment deal, require a lot of research and may take multiple bids before the price can be made to match the value. Following her success with the first property, my employee has submitted many bids but still hasn’t been awarded a second property. It remains a process, one that still requires work.
After being introduced to this new form of auction I got a little education. I learned that online auctions cover all sorts of properties from residential to commercial, from bank-owned to individual-owned. One of the beautiful parts of online auctions is the transparency, since you get to watch all the other bids and therefore know exactly what’s going on at all times. It’s plain to all bidders that winning an auction is not based on who you know or how well you can “sell” your bid. You simply place you bid, increase your bid (if necessary), and win; or you can try again on a different property.
Here is how to get a good deal with online auctions:
- Do your homework on the market
- Look at related comps in the area
- Speak to property management companies to learn facts about rent in the area, which includes
- looking at rental rates in the area
- finding out how long it takes to rent in the area
- Speak to a construction general contractor to learn about what the property needs and the cost it will take to effect those changes
- Walk the property with your contractor and property manager
- Have a max number you are willing to pay before the action—AND NEVER GO OVER IT
Of course, there are also missteps to be avoided when accessing online auctions. Many mistakes come from bidders trying to take shortcuts and/or not controlling their emotions. The most common errors made on Auction.com include:
- Getting too excited and overbidding on a property
- Not properly evaluating repair costs
- Not properly estimating rental rates
- Not inspecting the property in question
So while I have not gone on Auction.com (technology and I do not get along) I am pleased to announce that Robert Friedman, the Chairman and co-founder of Auction.com, and Rick Sharga, Executive Vice President, will educate my Rich Dad community about online auctions, the process, and how you can join other like-minded real estate investors in finding properties at wholesale prices.