Two people told me never bid at an auction without all cash, a third said that's outdated advice

Question

I've been sitting on the sidelines reading county notices for about five months. Everything I read about the auction stage says cash or certified funds, sometimes same day, sometimes within 24 hours, and that varies by state and even by county so I've been calling the trustee and the sheriff's office to ask what they actually require.

The part I can't settle is what a first-timer should be able to fund. One argument says the auction is the only place the discount is deep enough to be worth the risk, and if you can't write the check you should just keep saving. The other says the auction punishes people who can't inspect and can't walk away, and a beginner is better off buying an REO on cleared title with normal financing and accepting a thinner spread for the ability to get an inspection and a title commitment.

And then there's a third path I keep bumping into, where people say don't fund anything at first, get a pre-foreclosure under contract and assign it. That sounds like it removes the capital problem and replaces it with a marketing problem.

I'm slow at decisions and I'd rather aim at the right stage now than switch twice. Where should someone with no closed deals be pointing?

gregpowell66 · Answer

The capital question isn't the one that will hurt you first. I came at this from framing and roofing and I still misjudged a sight-unseen house by about 30k because the interior was gutted for wiring by someone who never finished and the panel was a mess. Cash would not have saved me there. Whatever stage you pick, your repair number is the thing that has to be accurate.

dpatel_re · Answer

Answer depends on what you think your edge is. If your edge is money, the auction pays you for it. If your edge is patience and a decent contractor relationship, REO pays you for that and the title is already cleared, which is worth real dollars on a first deal.

One thing to price properly, anchor: hard money on an auction purchase is not a substitute for cash unless the lender will actually wire on the timeline the trustee demands. Get that timeline in writing from the lender and compare it to what the county told you. I've watched two people assume 10 business days and find out it was 24 hours.

The assignment path removes the funding constraint and adds a different one. You need enough deal flow that a few deals a quarter make it worth doing, and you need buyers who close. That's a business, not a shortcut.

joe_delgado5 · Answer

I do thin deals fast and I'd still tell you REO for the first one. Not because auction is unwinnable, my first two came from a trustee sale, but because you learn the repair side and the resale side without also learning the title side and the occupancy side in the same 30 days. Take the smaller spread and get one full cycle behind you.

karen_whitfield · Answer

Nobody in this thread is going to say it so I will: the option where you keep reading notices for another year and buy nothing is not automatically the wrong one. Supply is going up gradually. It is not going away next quarter. If your money isn't ready, waiting costs you very little on this strategy compared to overpaying once.

devon_pierce · Answer

I'm 14 months into building a default list and haven't bought anything, so take this as one person's experience. Pre-foreclosure looks capital-free from outside and it isn't. Mail costs money every month whether anyone calls, and the owners who do call are usually in a situation that needs a workout rather than a sale. Most of my conversations ended with the servicer, not with me. If you go that route budget the mail spend the way you'd budget earnest money.

carlos_nunez · Answer

flint's sequencing is right and I'd add the reason. On an REO you get a title commitment before you're committed. I currently have a bank-owned house where the preliminary showed a municipal utility lien nobody mentioned, about 6k, and I was able to make the bank deal with it because I hadn't closed yet. At auction I'd have owned it and the lien both.

orchard, on waiting, sure, but the version of waiting that works is waiting while your lender approval and your comps process are already built. Waiting with nothing built is just five more months of reading notices.

bmoreno23 · Answer

Voted REO. I'm starting from nothing and the thing that convinced me was sextant's point about which constraint you're trading for which. I don't have money so the auction was never the choice, and the assignment path assumed I already have a buyer list I don't have. Cleared title and a slimmer margin is the version I can actually survive being wrong on.

Two people told me never bid at an auction without all cash, a third said that's outdated advice

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