The last bidder always pays the most (stating the obvious)

I’ve started looking at foreclosure sales of single family and 2-4 unit rentals to see where the opportunities are.  It didn’t take long to realize that the auctions are bringing out the amateur investors in droves.  I think auctions are a great way to buy a home for yourself, but after touring my first pre-auction property and talking to some agents, it’s clear that people are over-paying for real estate as an investment when it gets to auction.  Most of the best properties get sold pre-auction, and you can expect to be outbid at auction by someone who doesn’t think about risk premiums the way you and I might.  The auctions are exciting and actually fun to just people watch, but I think a lot of bidders are underwriting hope rather than reality.  I’ve concluded that the best way to really buy an investment property right in the year ahead will be by focusing on knowing your market dead-on, working faster and harder at diligence than your competitors, and actively engaging the brokerage community which is dealing with these assets well ahead of them ever getting to an auction.  You’re still going to lose way more deals than you’ll win, but you won’t be bidding against a buyer who doesn’t understand what a cap rate is.  If you are a “friends and family” member of a bank, that’s another way to get a first look, but for the rest of us, call your broker.

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