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Old 08-06-2011, 08:04 AM
 
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Does anyone have first hand knowledge of how the trustee auctions work and what happens after if you purchase a property. Is there RE agents that will go to these on behalf of a client?
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Old 08-06-2011, 04:18 PM
 
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No RE agents I know go there to buy. There are groups that will buy a property for you for a percentage fee.

Things you need to be aware of:

1) You need full cash for the sales price of the property. There are places that claim they will finance you, but they are fronting the cash and trying to get you a loan after. After you add up all the fees they charge, it's usually at least 10%, plus it can be a hassle to get the loan. Plus I'd always be concerned if it is a good property, they'll just outbid you and take it themselves.

2) You only get a trustee deed, which you will have to record and pay real property transfer tax. You get no keys, nobody kicks the holdover occupants (renters or owners). That's your job. Renters have rights and you may have to let them stay a long time depending on exactly what you're doing. Owners don't get those rights, but they can be difficult to get out and may damage the place. Most trustee purchasers use cash for keys to get people out or avoid buying occupied properties all together.

3) You get no title insurance so it's your job to do the background research and find if there are any liens on the property.

4) HOA fees can kill you on any deal and they are difficult to impossible to find out upfront. The HOA can ask for 9 months of monthly fees, plus an unlimited amount of collection charges. Attorneys have figured this one out and it's not unheard of to ask for thousands of dollars in legal and collection charges.

5) There is no review of the property and no warranty of any kind. You buy strictly as-is without seeing the interior of the property. Most investors go by the mantra "if it's nice outside, it'll be nice inside, if it's nasty outside, it'll be nasty inside", but obviously that isn't 100%. You may get a place with no air conditioners, no kitchen, concrete down the drains, etc.

6) You have to understand how lien priority works and what liens are stripped away when you buy a mortgage. Also make sure you're buying the 1st mortgage and not the 2nd. You can buy the 2nd and guess what, you still owe the first.

I could go on and on. There are a lot of risks involved and you really need to do your research. Profit margins have thinned a lot as the "word gets out" and new investors come in and are willing to pay more. It used to be that nobody would pay more than 80% of market value at auction. Now I'd say it's closer to 90%, which leaves little room for profit and/or error if you make a mistake. Never know though. I saw a deal the guy paid 118k for a house, did probably 15k in rehab and sold it for 210k a month later.

Best bet if you want to get involved is go to the auctions and ask around. Try to get an understanding of what's going on. Read online.

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Originally Posted by mike886 View Post
Does anyone have first hand knowledge of how the trustee auctions work and what happens after if you purchase a property. Is there RE agents that will go to these on behalf of a client?
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