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Posts Tagged ‘Real Estate’

Interview with John Ray: How to Get a Good Deal on a Foreclosed Property at the Trustee Sale Auction and Avoid Common Mistakes

February 22nd, 2010 David No comments

There has been much hype about buying foreclosed properties in mainstream media and on the internet. You may be wondering:

What is it really like bidding at the foreclosure auction? Are there good deals to be had? What does it take to get a good deal?

Last week I interviewed John Ray, owner of a foreclosure auction bidding service firm located in Phoenix, AZ. John has been in real estate for 20 years and is a wealth of knowledge when it comes to bidding on foreclosed properties at the trustee sale auction.

John’s company BidAZForeclosures.com has been bidding at Maricopa county foreclosure auctions on behalf of investors for 7 years, currently buys about 100 properties a month, and is one of the largest bidding groups.

This interview lasted over 30 minutes; it has been captured on video and edited into 4 parts. It is well worth your time to watch all 4 parts because you’ll learn John’s insider perspective on getting a good deal at the foreclosure auction and how to avoid common mistakes investors make.

Topics Covered in Part 1 of This Interview

  • Are there good deals at auction?
  • How many properties are bought at the auction?

Overview of the foreclosure auction process:

  • How do properties end up at foreclosure auction?
  • Why do some foreclosures get postponed?
  • How does the bank establish the opening bid?
  • What is a “total debt” bid vs. a “specified” bid?
  • What really happens at the trustee sale?
  • What happens after you win a bid?
  • How do you get title to the property?
  • How do you take posession of the property?

Topics Covered in Part 2 of This Interview

  • How does the current market cycle compare to the previous one?
  • What’s happening with bank REO properties?
  • Why aren’t banks doing more short sales?
  • How do you buy properties at auction?
  • Why do investors use your bidding service?
  • How risky is it?
  • What are some common mistakes?
  • What due diligence do you do before bidding on a property?
  • What happens when you make a mistake?

Topics Covered in Part 3 of This Interview

  • Is there any truth to the “old boys network” that controls the auction?
  • What is it like bidding at the auction (examples)?
  • What is blind bidding?
  • What are dropped bids vs. jumped bids?
  • Where do you get the property listing info?
  • How are you different from other bidding groups (examples)?

Topics Covered in Part 4 (Final Part) of This Interview

  • How do new investors get started?
  • What is the Jump Start program and how does it work?
  • What are some common beginner mistakes and how do you avoid them?
  • Do you really have to pay all cash at the auction?  Are there other options?
  • What is “hard money” and why do people use it (examples)?
  • How does an investor work with a bidding service like yours?
  • How do we contact you for more information?

Please let us know what you think of the interview, whether you love it or hate it, by leaving a comment. If you enjoyed this interview, please rate the videos on YouTube as well.  Thank you in advance for your feedback!

If you’d like to see a video of live bidding at the Phoenix (Maricopa County) trustee sale auction, see my prior post:
Phoenix Foreclosure – Video of Live Auction at Trustee Sale

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Phoenix Foreclosure – Video of Live Auction at Trustee Sale

February 12th, 2010 David No comments

I visited a live trustee sale auction at the courthouse steps in downtown Phoenix where the bank trustees auction off foreclosed properties to the highest bidder.

See the video below for the live action at the trustee sale.

The video gives you a good idea of what goes on at a trustee sale auction. However, it was not as busy and chaotic as it could be. I will probably go back another day to get more “action shots” for you.

Let me know what you think or what else you’d like to see by commenting below.

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Foreclosure Trustee Auction: Where to Find the List of Homes Sold at the Trustee Sale?

February 10th, 2010 David No comments

A reader emailed us a question on how to get the list of homes to be sold at the trustee sale auction. I’ll answer that question in this post.

The first part of the answer is that it depends on where you are located. Each county has its own method of posting properties pending foreclosure. There are also different types of foreclosure, depending on the location and the instrument used to secure the property as collateral for a loan.

For the areas I am familiar with, foreclosures are listed by the trustee in a local newspaper prior to the property being sold at auction. The listing should include the property ID, date of the sale and the loan amount. Often the opening bid, set by the bank, is not released until a few hours before the sale takes place.

There are two common things which interfere with an investor buying a property at the trustee sale auction:

  1. The sale often gets postponed.
  2. The bank most of the time (80% to 99%) gets the property back because they are the highest bidder.

One other option to find out about soon-to-be-foreclosed properties is through list service providers. These are companies that will research the properties and sell that information to investors. One popular service here in Phoenix is Arizona Investors Alliance, also know as Bid AZ Foreclosures.

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Phoenix Trustee Sale Home Tour – After Renovations

February 4th, 2010 David No comments

Watch the video below for my second visit to this upscale Desert Ridge home, as I tour the house and point out the changes made.

After Renovations

Before Renovations

For your reference, the “before” video (just 2 days after the home was purchased at the Phoenix trustee sale auction) below:

Ask yourself this question:

Would YOU buy this home for approximately half of its peak price at the trustee sale?

Related post: Real Estate Investors Turning to Trustee Sales for Bargain Purchases

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Hard Money Lending for High-Yield Cash Flow and Security – Part 2

January 12th, 2010 David No comments

In Part 1 we discussed why the market is ripe for hard money lending, now let’s look at why hard money lenders are willing to fund deals traditional lenders reject.

Hard Money Lenders Can Charge Much High Interest Rates

Hard money lenders demand much higher interest rates (10-18% or 2-3 times higher) than banks do because they fund deals that do not conform to bank standards.

Banks have very specific standards because they are highly regulated and need standardized systems to make many loans. In contrast, many hard money lenders are individuals or small groups who are willing to work in narrower markets with niche products.

It’s All About the Asset / Collateral

If you could own an asset (e.g. real estate) that is worth $200,000 for only $100,000 (getting it for half price), would you do it?

Hard money lenders provide short-term loans (usually 6 to 18 months) based primarily on the value of the hard asset (such as real estate) that is collateral for the loan. In contrast a traditional lender bases the loan on the borrower’s ability to repay with the collateral as a secondary factor.

The two best quotes I’ve heard from hard money lenders are:

“Only lend if you’d rather have the asset.”

“Drive by the asset and think: do I want to own this?”

The “asset” referred to above is real estate, typically a single family home. Now think from the hard money lender’s perspective: You’re making a loan based on the asset, so what’s the worst thing that could happen?

Answer: The borrower defaults and does not pay you back.

So what happens when a hard money loan is defaulted upon?

If the hard money lender has properly recorded a first lien on the property / collateral, then the lender can follow the legal procedure to foreclose on the property – i.e. the hard money lender becomes the owner of the property which was the collateral for the loan.

Let’s see how the math works out in an example:

Imagine a new home bought in 2005 for $400,000 (inflated price in the bubble) and is now worth $200,000 (realistic market price today). The home owner who owes more on the home than it is worth today and who lost their job in the recession has stopped paying the mortgage and been foreclosed upon.

A flipper can buy this home at the trustee sale auction for say $120,000. The flipper buyer gets a hard money loan for 80% of the purchase price, or $96,000, and pays the remaining $24,000 cash himself.

Hard Money Lending Example

So, assuming the home is really worth $200,000 (realistic price a retail buyer would pay today), the hard money lender’s basis in this property ($96,000 loan amount) is roughly 50% of today’s retail price ($200,000)!

That is a VERY secure position for the hard money lender.

So, in the “worst” case where the borrower defaults on the loan, the hard money lender gets to own the asset that’s worth $200,000 today for only $96,000 (ignoring fees and other legal costs).

How to Win Even If You Lose!

Hard money lending in this market is lucrative because you get to “win even if you lose”:

(1) If the borrower pays you back with interest as promised, you’ve received double digit yield on your money in a short period of time (6-18 months). This is an attractive yield compared to 0-3% on bank CDs and not much more for corporate bonds.

(2) If you “lose” and the borrower fails to pay you back, you can take ownership of the collateral property for what amounts to about half the current market value (e.g. $200,000 property for $100,000).

So, as a hard money lender, you can receive a double digit yield in most cases AND have the security of making even more money if the borrower defaults and you get the property at a cost below the REO or trustee sale price.

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