Buying Real Estate at Auction in Austin, Texas

The air is filled with excitement. On a muggy Austin night, home-buying hopefuls crowd into a small hotel conference room eager to walk away with a deal that will “beat the market”.

The crowd ranges from first time homebuyers to savvy investors buying multiple properties in one night. The auctioneers are true professionals and so is the staff. For one night with only 30 properties selling, the staff exceeds 50 people. There are auctioneers and taunting auction assistants, organizers, loan officers, paper pushers and the list goes on. This is one well-oiled, selling machine.

One question remains on the minds of the people in the small, cramped hotel conference room: are there deals to be had at a Real Estate Auction?

The answer is: DEFINITELY YES!

However, there are some qualifiers to this very exciting answer.

1. You MUST be prepared.

You MUST know what the true value of the property is. Not what the auctioneers say the home is worth, not what the home was listed for in the MLS and certainly not it’s “potential value” after you update it with Ikea cabinets and put it back on the market.

You MUST also have all your paperwork in order. You must bring exactly what they tell you to bring, you must pre-register and you must bring your checkbook and be ready to ABSOLUTELY commit to that property when you raise your number to bid.

You MUST do all your inspections of the property before you show up at the auction. There is no option period or escape clause. As stated before, you are all in once you raise your bid card.

2. All deals are not created equal.

Of the 30+ properties up for auction that night, only 6 are in Austin. The auction represents property from Killeen down to San Antonio. Of the Austin properties there were 2 homes, 3 condos and 1 duplex.

Sold prices ranged from $65,000 – $290,000. In my professional opinion, 4 out of the 6 properties were deals. Taking a closer look; one of the condos is tied up in multiple lawsuits involving the developer, sales representatives and the original buyers of the properties. Another property was illegally subdivided into condos and does not have a clear title. I’m still confused about why someone would buy either of these properties, but I guess if the price is right they will sell. However, at the price that these properties sold for, I could not justify the investment.

The four properties that I do think were good purchases sold for somewhere between 14-60% below market value. This is also being very conservative and trying to include necessary repair costs. Two of the four properties have potential pitfalls:

A single family home in Lakeway was a cash-only purchase. The bank would not accept any loan to purchase the property. This could mean that the property had repairs that would disqualify it from receiving a loan—typically foundation issues or repairs that exceed a certain amount.

A condo in Northwest Austin (bought 60% below market) has no comparable sales since October 2009 in the development. It was also a cash-only purchase. This most likely means that there are not enough owner-occupied units in the development to qualify for financing. It also means that this buyer is holding on to this property for an extended period of time. Turning an entire development around to meet owner-occupancy levels is very hard. This severely limits your buying pool when you go to resale.

3. All sales are NOT final.

After you procure the winning bid on a property it does not mean that the bank will accept your offer. The bank has 15 business days in which to approve the purchase or reject it. This is the only way you may be able to walk away from the purchase with your earnest money in hand.

4. You need an EDUCATED professional to assist you.

Today’s market conditions require in-depth understanding. Real estate agents who are Certified Investor Agent Specialists™ (CIAS) have been educated and have the experience to help you meet your real estate investment goals.

As a Certified Investor Agent Specialist, I can help you find the deals and get you on the road to building your wealth through real estate.

Americans have traditionally chosen to gamble on the stock market for additional income and retirement funds; however, real estate—especially today—can provide cash flow, more stability and better tax incentives than investing in stocks. In fact, when properly managed, leveraged equity in real estate can far outpace stock appreciation over time.

Myth vs. Fact: Real Estate investing is only for the very rich.

Answer: Myth
According to a 2009 National Association of Realtors® study of investors, nearly half of all investors had an annual income of less than $75,000?

If you think that buying a home or investment property is something that you are interested in doing, please email me at patrick@westaustin.com for more information. There are many other ways to find great deals on properties in Austin, Texas. We can help you explore your options during a buyer’s consultation.

If you are an investor at any level, we can help you identify investment properties, analyze cap rates, determine potential cash flow and cash-on-cash returns.

Look out for future blog posts about Investing in Austin Real Estate or join us on Wednesday, December 8th at 6:30pm for our 2nd Wednesday Webinar Series—Real Estate Investing: Buying for Cash Flow.