IPS Blog

Auction Fever

[fa icon="clock-o"] Nov 15, 2018 10:00:00 AM [fa icon="user"] Brent Maxwell [fa icon="folder-open'] auction, real estate investment

When bidding at an auction, the most important thing is to not get emotional about your bids.

It’s business. Don’t let emotion cloud your judgment. And don’t get too attached to a property.

Prior to an auction, we do the math on a property that seems perfect for us. We figure out our maximum bid to make good business sense and lock it in.

Recently, we went to auction to bid on a property we’d pay up to $6,700 for. It sold for $67,000. That’s not a typo.

The property required a major remodel, down to the studs. Everything renovated, pretty much. But it wasn’t worth five figures.

We calculated the worst case scenario and came up with a solid number that would be worthwhile for flipping the property and making it work for all involved. That number was $6,700. So when the auction surpassed our ceiling price, we bowed out. Let someone else take on the property at inflated rates and see whether they can come out with a profit.

They won’t. 

We’ve been around this block enough times to know when to stay in the game and when to leave. We would have been better off bidding on the house next door that was ready to go, with little work needed.

The one we wanted was over-priced, over-bid, with bidders caught in the auction frenzy of bidding for the wrong reasons. It happens. At auction, it’s easy to get caught up in the hysteria, the adrenaline rush, and really want something that you only sort of want, within a proper framework and budget.

Bottom line: Don’t get emotional about auctions. Lock in your price beforehand and understand the logic of those numbers. That’s what we do, and we’re well-served to stick to our business format if we want to be in this for the long-haul.A few years ago in Hamtramck, we selected 113 properties to bid on. We calculated the math on all of them, came up with our final numbers, and bid on all 113.

We lost every single one. Another instance of overbidding due to auction fever.

Now, you can never out-bid an owner-occupant who just loves the house and wants to reside there. They are not in the same game as we are. They don’t need or want a profit. They want a home.

We want to give new life to our beloved city and make a good dollar while doing it.

You can’t beat an emotional investor. They’re going to overpay for properties and get stuck with them. Our goal at auction is not to win properties; it’s to not lose on what we buy.

It’s better to have the money in reserve than to overbid, overbuy, and pay too much on a property that should go for less.

Bottom line: Don’t get emotional about auctions. Lock in your price beforehand and understand the logic of those numbers. That’s what we do, and we’re well-served to stick to our business format if we want to be in this for the long-haul.

Brent Maxwell

Written by Brent Maxwell

Brent Maxwell is the founding partner of IPS Realty

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