Tag Archives: courthouse steps

Using AZ Bidder to Buy Homes at Trustee’s Sales: Videos 5-7

“The one thing I learned in jail is that money is not the prime asset in our lives.  Time is.”

–       Gordon Gekko, Wall Street:  Money Never Sleeps, 2010

A sequel is rarely as good as the original film.  Wall Street:  Money Never Sleeps probably won’t have the shelf life the original movie had.  Shia LaBeouf?  Please.  He’s no Charlie Sheen.

I hope you will find my sequel, Using AZ Bidder to Buy Homes at Trustee’s Sales:  Videos 5-7 as good as the original post, Using AZ Bidder to Buy Homes at Trustee’s Sales:  Videos 1-4 .  I guess my collection of videos are less like a sequel and more like a full season of Sopranos episodes – by themselves they don’t make much sense but when viewed together the message is clear.

One disclaimer before you watch this next set – I’m not paid by AZ Bidder to endorse their company.  I put these videos together on my own as a service to my readers.  Buying homes at trustee’s sales (courthouse steps) is very risky.  But armed with the right information you can minimize this risk, save time and capitalize on some incredible opportunities in the market.

*For the best resolution I recommend you view these videos in full screen mode with the 720p HD option selected at the bottom right corner of the video box.

Video 5 – Placing a Bid

Video 6 – Watching the Bid Cast

Video 7 – Final Results


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The Just Plane Smart Real Estate Investing System

The year was 1966.  A pilot named Rollin King and his attorney friend Herb Kelleher sat in a San Antonio bar talking business.   Rollin grabbed a cocktail napkin and drew a triangle.  He wrote Dallas, Houston and San Antonio in each corner then showed it to his friend.  The plan was simple.  Fly people between these three cities as safely and efficiently as possible.  Get them there on time.  How did Herb respond?  “Rollin, you’re crazy.”   Then Herb thought about it a moment more and said, “let’s do it!”  Southwest Airlines was born.

My business partner, Manny Romero, and I had a similar meeting at a seafood restaurant in Tempe last summer.  Our objective was to implement a simple, easy to duplicate real estate investing system.  Since our cocktail napkins had ice cold beers on them I had to sketch out our plan on a yellow note pad.

We weren’t exactly starting from scratch.  Fortunately, I had been working for a real estate investor in town as a project manager.  This investor was doing about 20 fix and flips a month.  Believe it or not he willingly shared this successful system with me.  Why?  Because he recognized it would create other opportunities for himself down the road (more on that in a minute.) 

Practically overnight Manny and I raised $180,000 by partnering with someone that had a self directed IRA.  My investor friend wholesaled us two houses and we flipped them both 45 days later for a net profit of $31,500. 

Does it make sense now why my investor friend shared his system with me?  He just gained a wholesale buyer.

So here Manny and I sat at King’s Fish House with a blank piece of paper and a calamari appetizer – proud of our recent success and motivated to do more.  Like Rollin King and Herb Kelleher we focused on controlling costs and being efficient.  The plan was to be the Southwest Airlines of real estate investing.  This is what we came up with:

  • Acquisition – We buy at trustee’s sales and REOs off the MLS.  NO short sales.
  • Price point, not location – We keep our acquisition price under $150,000.  Location doesn’t matter unless the home is in a war zone.
  • Type – newer homes with tile roofs, wood-frame construction, 3 bedroom – 2 bathroom – 2 car garage minimum.
  • Target buyers – we buy in areas with a high concentration of first and second time homebuyers.
  • Rehab – we buy homes that can be remodeled in 7 days or less.

This approach enables us to control costs.  When we buy a house at the courthouse steps or an REO off the MLS with this criteria there are very few surprises.   We paint every house the same color.  We use the same appliances, tile, carpet, light fixtures, blinds, and door hardware.  Our houses even smell the same.  We buy apple cinnamon air fresheners in bulk. 

Have you ever noticed Southwest Airlines jets look the same?  That’s because they’re all Boeing 737s.  It’s more cost effective to fly the same jet because they don’t have to train mechanics on different aircraft or warehouse a variety parts.  Like Southwest, our homes all look the same.  The buyer’s agents love to show them.

Since that brainstorming session last summer Manny and I have flipped 29 houses with a 48% cash on cash return to our investors.  Not bad.  Our just plane smart real estate investing system is working.  Our balance sheet make not look like Southwest Airlines’ but these days we are flying high.  Break out the cocktail napkins.


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REO Tapes: The Loch Ness Monster of Real Estate

Unicorns.  UFOs.  Big Foot.  Sasquatch.  Leprechauns.  The Loch Ness Monster.  Everyone has heard of them, but no one has ever seen them.  As far as I’m concerned, you can put REO tapes on this list too.

What is an REO tape?  It’s a package of foreclosed homes that a bank (i.e. Bank of America) or insurer (i.e. Fannie Mae) elects to sell for a discount.  The theory is here that by selling them in bulk they solve a big cash shortage problem in a short period of time.  The buyers of these tapes (usually hedge funds or private investors with deep pockets) pay from .30 – .67 cents on the dollar per property.  Sounds like a win-win right?  Absolutely!  That is, of course, you can find one of these tapes.  It seems like tracking one of these down is like finding the proverbial pot of gold at the end of the rainbow.  Here are a few examples…

Where Did the Houses Go?

I ran into a well-connected colleague two weeks ago at a seminar in Scottsdale and he told me that he was about to close a 182 property tape.  I asked if he was interested in wholesaling any of these homes to my investment group.  He said yes.  We spoke two days ago and the deal blew up.  Why?  52 of the homes in the tape had already been sold and 6 of them had no property tax records.

The Meeting

It took place in a posh conference room in the swanky Gainey Ranch area of Scottsdale just two months ago.  My business partner and I were introduced to a very professional gentleman, well-spoken and well-groomed.  He explained that he had connections at both Bank of America and Chase Bank.  He could find us one of these tapes consisting of properties that fit our investment strategy.  Two months, four emails and three phone calls later and still no tape…my last email to him, sent last week, still has not been returned.

Tapes or Trash?

Last July I met with a California investor anxious to have me help him with due diligence on a 16 property tape he had been offered by a private investment group.  Guess what?  All but one of the homes had already been sold on the MLS. 

In September of 2008 I was asked to do due diligence for a private equity fund on a 78 property tape from Fannie Mae.  38 of the properties were located here in the Phoenix metro area.  After conducting a quick search I found that 35 of these homes were listed on the MLS for LESS than the asking price in the tape.

Pie in the Sky

About two years ago I met with one of the leading REO agents in Phoenix.  With almost 200 listings at the time, I asked her what kind of discount we could get if I made an offer to purchase all of her Litton Loan listings.  She said none and then quickly asked me, “Why would they sell these homes to you for .60 – .70 cents on the dollar when they can sell them on the MLS for .88 cents on the dollar?”  It was a very good question.

So do these REO tapes really exist?  Of course they do (my Loch Ness Monster joke was intended to get your attention!)  But don’t you think that the bank is going to do everything they possibly can to sell them for top dollar (i.e. at the courthouse steps, on the MLS, at public auctions like REDC) first?  The homes that get bundled up into these tapes have typically been picked over like the bargain rack at Wal-Mart.  They back to major intersections, have power lines in close view, are in war zones or in the middle of nowhere.

Now don’t get me wrong.  I desperately want REO tapes to exist.  They would be great for my business.  If you can find me one I’m all ears.  It would be like Santa Claus came early (I know he exists because me and my daughters saw him at the mall last December.)


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Buying Houses at the Courthouse Steps? Be Quick, but Don’t Hurry

 This past week legendary UCLA college basketball coach John Wooden passed away at age 99.  I’m a huge sports fan although admittedly I didn’t know much about him.  I just finished reading an article in the New York Times, ‘Wooden’s Legend Extends Beyond Titles’.  Several of the players he coached, including Andy Hill, praised Coach Wooden for the lessons he taught on and off the court.  At practice Coach Wooden would often say “be quick, but don’t hurry.”  Mr. Hill was so inspired by this later in life that he wrote a book with Coach Wooden called Be Quick, But Don’t Hurry.

 What does this have to do with real estate?  Well, if you want to buy houses at the courthouse steps, or buy houses from someone who buys them at the courthouse steps, you must be quick.  But, if you hurry you’ll get crushed. 

 I’m frequently approached by Realtors and would-be investors that tell me they want to buy houses at the auction, either for their clients or for themselves.  After all, it’s sexy isn’t it?  Who wouldn’t want to buy a house for 30% below market value, fix it up, sell it for a mega profit, brag about it to their friends and then fly off to Hawaii to celebrate?  That’s the fantasy.  The reality is that most investors who have the resources (cash) to buy a house at the auction never do.  Why?  Because they can’t make a quick decision…the thought of purchasing a home without seeing it or performing an inspection paralyzes them.

 Last week I called a Realtor who has a client interested in purchasing wholesale properties from our company.  We had a home come up that fit their description located in Buckeye, Arizona.  I gave them the details and told them they had 24 hours to make a decision.  The next day they backed out because they were worried that because there was no power at the home they couldn’t inspect the A/C unit.  Huh?  There was plenty of spread in this deal (our price was 76K and it comps for 110K) to compensate for a faulty A/C unit, plus a whole lot of other potential problems that could come up.  Let’s not forget why these houses sell for so much less at the auction – you don’t know what you’re going to get.

 Since last summer my company has purchased and sold 25 properties at the courthouse steps.  On average we net $8,500 in profit, as long as we buy at 74% of market value (or less), spend $9,000 on repairs (or less) and sell in 65 days (or less.)  With this data I can be quick without hurrying.  So if you plan to buy at the courthouse steps know the numbers and have a plan that empowers you to make quick, educated decisions. 

 It reminds me of the Clint Eastwood movie, ‘The Outlaw Josey Wales’.  When approached by four armed cavalrymen in the street he asked them, “are you gonna’ pull those pistols or whistle Dixie?”  Josey wasn’t afraid to pull the trigger quickly because he had a plan mapped out in advance.


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Real Estate Recovery Roadblock #1: The Appraisal Process

angry peopleIt would be easy to slam the Home Valuation Code of Conduct (HVCC) in this post.  Yes, the NAR and other real estate organizations blame this so-called voluntary code for road blocking the real estate recovery, and I agree with them.  If you’re not familiar with the code or its origins, read the ‘Washington Report:  Home Valuation Code of Conduct’ from the Realty Times to learn more.  But, I thought it would be helpful to go a little deeper in this post.

Now before you appraisers out there get your pitchforks and torches out remember I said the appraisal process, not the appraiser.  Easy does it…I’m on your side.  You get an earful from the buyer, the buyer’s agent, the listing agent, the seller and the bank.  I don’t envy you one bit.  Kurt Vonnegut’s book, ‘A Man Without a Country’ comes mind.

If you’ve sold a home in the last six months, either your personal residence or an investment property, you’ve undoubtedly had a problem with the appraisal.  And you can bet the problem wasn’t that the appraisal came in too high.

I purchased a home at the courthouse steps on 9/1/09.  I had it painted, put in new carpet, stainless steel appliances and landscaping.  It quickly went under contract for $124,900 with multiple offers, but the appraisal came back at $112,000.00.  Of the comparables the appraiser pulled, two were short sales and one home had one less bedroom and bathroom than mine.

The appraiser assigned to this file told me that short sales and bank-owned homes were part of the market and must be included in her review.  Keep in mind that this was a USDA loan so the HVCC does not apply. When I told her that six new homes built in the same subdivision by the same builder had just closed for $20,000 – $50,000 more than mine she said they could not be included in her appraisal because they were “different”.  Excuse me?

Now I don’t blame her.  She’s been programmed to spew this nonsense by the lenders she works for.  But if a new home is “different” from a move-in ready, traditional sale (i.e. not a banked owned home or short sale), then how can a traditional sale be compared to a distressed property?  The terms of sale and condition are completely different.  Furthermore, using this twisted logic how would values in any real estate market ever go up?

Statistical multiple listing service data in my area proves that traditional sales, on average, are worth 20-40% more than short sale and banked owned properties.  Here is the information directly from Mike Orr’s Cromford Report for the month of September:

  • Bank Owned Homes:                        $68.66 per square foot
  • Short Sales:                                          $84.41 per square foot
  • Traditional Sales:                               $116.73 per square foot

By the way, if you don’t have a subscription to Mike Orr’s Cromford Report, you should get one, even if you don’t live in the Phoenix area.  It has to be the single best resource for any real estate professional and it tracks every market indicator you can think of.

apples to orangesSo what needs to change?  For starters, apple to apple comparisons for terms of sale must be made.  If the appraiser can’t do an apple to apple comparison allow them to go further out.  Next, factor in days on market (more value should be added to the property if it goes under contract quickly, and conversely value should be deducted if the home sits for months on end.)  Additionally, consideration must be given to how many offers are received on the subject property.  Finally, the HVCC must be eliminated (see Inman News story from yesterday, ‘NAR:  Appraisal Rules Undercut Tax Credit’).  Another by the way, if you don’t have a subscription to Inman News, you should.  This is a must read for every real estate professional.

The bottom line is market value should be determined what the market is willing to pay, not what the lender is willing to lend.

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