I spent most of the day at the Las Vegas trustee sale.  In case you aren’t aware what these are, its part of the process where the banks foreclose on a house and they sell the trust deed (you buy the house) at the courthouse steps.

The great part is that there are some good opportunities to make a quick and good return.

The drawbacks are that youhave to have cash and you have to know what you are doing.  Last week a guy bought a house for $72,000.  At least he thought he did.  He actually bought a 2nd mortgage, which means the 2st mortgage is just going to foreclose on him (or he has to pay it off when he sells) which means his $72,000 is basically GONE.  He can have control of the house and rent it, but he can’t sell it without resolving the 1st lien.

I went with 9 properties to bid on.  4 of them went in the first 30 minutes for higher than I wanted to pay.  The others were postponed.  All together there were 250 postponements, 150 went back to the banks to be sold as REO’s and about 50 bought by investors.

The hardest part is spending the time to value each property so that you know what to bid, and ensuring which lien you are buying and what other fines there are that come with the house.  One guy bought a place that had $3,000+ or HOA liens on it, so he bought those liens along with the house.  That isn’t a problem unless you don’t have enough margin.  Let me give you an example.

You want to make $10,000 on the flip of a house.

Home value $100,000

Trustee sale price $85,000

So far so good…. right?

Tax liens $2,000

HOA liens $2,500.

Total so far $89,500… Still within our window.

Now we find out that the house is occupied and the people want $1,000 to move out.  Its either that or you have to evict them and it takes time and $ so you give them $1,000 and they have moved out.  If you don’t then you take a chance that they trash the house before they move.

Now it cost $90,500.

This entire time you are paying taxes and HOAs and once you get access you realize that it needs paint and carpet to get the market value.  Total cost $3,000.

Now the great $85,000 house is actually $93,500.

Profit = $6,500 (Assuming no commissions or transfer fees)

Anyway, that’s a brief summary of the process.