Announcement: I’m opening up a new tag – “Investing.” I’ve thought about doing that in the past for the purpose of periodically reporting results of a stock trading strategy I’m testing. I also participate in real estate investing and it is that activity that I’ll discuss in this entry.
Over 25 years ago, I met Jan (a guy), who became a close family friend for all that time. We’ve done a lot of backpacking together (among other things). When I first met him, he was a produce manager for a large grocery store chain. He was also getting started in real estate investing. Around a decade later (give or take), he had quit his job and was a full time real estate investor, focusing almost exclusively on single family houses.
Because of knowing him growing up, I concluded that it would be a Good Idea to invest in real estate when I could. I purchased my first house when I was 21 and it wound up becoming my first investment property.
A couple years ago (2006), I spent a considerable amount of time evaluating the idea of changing careers from airline pilot to full time real estate investor. While that wound up not happening, the work I did during that year ‘learned me up good’. It was a bad time to get started (and I knew that at the time), but that was the time I had chosen and I did the best I could. The results were positive but not what was necessary for me to change careers.
One of the things I didn’t do during that time was go to any real estate auctions (I used several other methods to find deals, of course). That would not have been a good time for buying at auctions. Now, the market has changed significantly and many foreclosures are going to auction. Jan decided to check out some auctions and invited me to come along, so we went to one last night.
The auction was one of 7 in California put on by an auction company. They had a total of over 1000 houses to sell in those 7 days. One of those was in Fresno and there were about 85 houses to be sold at that auction, about 30 of which were in Fresno and Clovis.
It started at 7:00 p.m. and they auctioned houses off at a rate of one every two or three minutes. There were way more people there than I would have imagined. I don’t know what the attendance was but several hundred anyway. The terms were quite favorable, especially compared to some other auctions. All of the sales involved 30-day closing periods and were conveyed with clean title and a title policy. Most of them had financing available on site with down payments as low as 5%. To bid, you had to have a cashiers check for $5,000 plus enough additional funds available to pay 5% of the sale price on the spot. There was a 5% buyers premium charged with each transaction.
I didn’t stay for the whole thing but stayed until the last of the Fresno properties were auctioned off (at least once). Some sales didn’t go into contract (sometimes more than once) and came back for a second auction at various points through the evening (usually three at a time).
I had not researched any of the properties but Jan had. Prior to looking at Jan’s research, I looked through the auction book to see if, just based on their tiny picture and couple of stats (sq. ft, bedrooms, bathroom, and address) I might be interested in the property. Then I looked to see which ones Jan had investigated and there was significant overlap. I looked at the comps and his notes from the inspection and came up with maximum bids for myself based solely on that information. I then compared those to Jan’s maximum bids and tracked the actual sale prices throughout the auction.
The somewhat surprising results (not so surprising given the attendance) was that the houses sold for, on average, over 80% higher than either of our maximum bids. In the cases where Jan and I both had determined maximum bids, they were different by an average of only 3%, though on one of the houses there was a difference of about 30% (I think Jan liked it a lot so he bid quite a bit higher).
The average price per square foot of actual sales in Fresno and Clovis was about $105 / sf. The average price for the cash only deals (usually due to poor property condition) was $90 / sf. The highest price per square foot was $146 and the lowest was $55 for an all-cash deal for a wrecked junker in a bad part of town.
There were obviously a lot of interested potential owner occupants there. Given the current market conditions, they’re probably getting ‘reasonable’ deals at the auction, but they aren’t attractive enough for me (or Jan).
The auction itself was quite entertaining. The auctioneer and auctioneers assistants were fun to watch and listen to and the pace kept things fun.
Conclusion: Good education, good fun, probably okay deals for owner occupants looking for a little discount, but not a place for us to find great deals.