I Bought My First House at an Auction
I bought my first house at an auction
I don’t suggest everyone go out and buy a house via an auction in a city they don’t live in. There’s a great deal of risk involved and every market is different. Homes in any stage of foreclosure may require many repairs in order to make them habitable. Homes are “under foreclosure” because the owners could not keep up with their monthly mortgage payments. In all likelihood, this also means they couldn’t afford to perform regular maintenance or repair serious issues.
The purpose of this post is to encourage you to use your advantages and figure out the best way for you to invest with the hand you’re dealt. In my case, buying at an auction was to my advantage. My dad’s friend buys foreclosure homes at auctions for a living. We were able to pick up tips from him and learn his system within a few months. Everyone has advantages in their life that they can potentially leverage in some way.
I bought my first house when I was 25 years old.
After graduating college I took a couple years to work in different jobs in order to figure out what I wanted to get out of life and how to best use my skills. I came up with a plan to get my real estate license and learn more about investing. During this time I was constantly researching about investing on the BiggerPockets.com website. BP is a fantastic site that’s helpful to real estate investors in so many ways. They have a huge forum that puts you in touch with thousands of other investors. The BP podcast interviews investors of all ages and experience levels. They also have an event section where you can look for meetup groups in your city. I can’t say enough about this site…go check it out!
I was very curious about real estate investing and wanted to jump in somehow. I had $25K in savings and wanted to put that in a property, but was confused about the best way to do so and nervous that I didn’t know enough. That’s when I started talking to my dad who lives in Atlanta. Growing up, my parents had a couple rental properties and I wanted to pick my dad’s brain about how he got started. Coincidentally he had just begun talking to a friend about his real estate business. My dad’s friend purchases auctioned homes in Atlanta. He researches properties on the auction.com website, and comes up with a list he wants to bid on. He has a very specific area he targets, and sets aside a certain amount of money he can bid for each home. After hearing about his methodology, we thought this could be a great way to invest in a property. My dad and I discussed the process in depth and did a great deal of research on foreclosures. We decided to be 50/50 partners on my first deal. Our decision to buy in Atlanta was because Austin foreclosure home prices didn’t fit our budget and anybody purchasing at an Auction must pay the full price in cash. Between the 2 of us we had $50K we wanted to invest. In Atlanta that was possible.
The day we bought our investment property was also the first time I went to an auction. I was in Austin without my father, but wanted to check out how the auction process worked firsthand. I walked into the Austin court house and instantly felt uneasy. It seemed that everybody except myself knew what was going on. There was a system and language that I was clueless about. As I looked around the room, I noticed 5 different groups of people huddled around bid callers who were quickly and quietly reading off addresses of homes being auctioned. The whole process was overwhelming and I became nervous that my dad and I were in over our heads. During that same train of thought, my dad called me and told me he found us an investment property at the Atlanta auction.
Life is a gamble. No matter how much we prepare and analyze, at some point we have to pull the trigger, make power moves and hope for the best. I was scared but I had a business partner I trusted and had done my due diligence in terms of research. I was also thinking, “I’m young and I can always make more money”. I was having very positive thoughts on a huge gamble. The whole process was a gamble because when you buy a foreclosure home at an auction, you don’t get to go into the house until after you purchase it. Our sales price was $50K, and after walking the house with a contractor we estimated it would take around $10-15K of work. After all of this our property would be worth around $100K – which is not bad. The owners were still living in the house and wanted to stay. We worked out a deal with them and they agreed to pay $1k in rent each month. This meant we didn’t have to completely fix up the home right away. Also, the previous owner is a roofer and he and my dad have worked on the house themselves this past year, which has saved us a great deal of money. Although we have had some luck come our way, we have also had some little hick-ups. The HVAC system gave out within 6 months and there were some plumbing issues. But each month that we collected rent, we saved it in a joint account. Anything that needs to be fixed comes out of that account. We have not had to spend any extra money on repairs yet.
You can make a million excuses but no matter where you are in life, you have the opportunity to leverage what you have to grow and expand. Want to get inspired? Listen to the recent BiggerPockets podcast episode about a 23 year old who has completed nearly 60 real estate deals in the past couple years. There’s also a great episode about a woman who has found her niche buying rental properties while keeping her full time job in the air-force. She uses her knowledge of an area she’s very familiar with and rents out her homes to people who are also in the air-force, near the base. She’s successful because she found her niche in something she’s familiar with. We all have the power to do this in some way! Maybe you know how to best utilize airbnb, perhaps you have an aunt who wants to invest with you, or you may have more insight on a particular subject than most others. Use your resources and leverage!