Won a five unit at the confirmation hearing after losing the last one, here is what the overbid actually cost me

Studying for the exam and this is the first time I've understood why anyone cares about the difference between full and limited authority. Can a licensed agent bid at those hearings for a client, or does the buyer have to be in the room? And who gets paid a commission if a walk-in overbidder wins?

$6,800 a turn on original kitchens is honest, most people quote me half that and then don't mention the cabinets. Eleven months for three of five is a reasonable pace on a building where nobody had moved since the Carter administration.

What did you do about the two remaining units? Long tenure at $810 means those are the people who will fight the increase hardest, and the answer you give them in month twelve sets what the building costs you in year three.

Let me put your own numbers back at you. Two attempts, $10,500 of diligence, one building. If your hit rate is really one in two, every future deal carries about $8,000 of expected diligence cost before you've bought anything, and that has to come off the spread you think you're capturing.

At $622,000 with in-place gross of $48,600, you were buying at roughly 12.8 times gross rent on trailing. At $5,600 a month stabilized you're at 9.3 times, which is a different building. So the entire deal is the rent gap closing on schedule and the $14,000 lateral not becoming $30,000.

How many hearings have you attended without bidding? That's the number I'd want, because it tells me whether your $631,000 cap came from the market or from your spreadsheet.

Naive question in a thread over my head. When you turned those three units, did you have any file on the outgoing tenants at all, or did the estate hand you nothing? I'm reading about screening constantly and I can't picture inheriting five occupancies with no applications behind them.

The logistics problem I'd have is crew scheduling. You can't tell a contractor to hold three weeks in October for a building you might not own. Did you line anyone up before the hearing or start cold the day after confirmation? Running a small team, that dead time between winning and mobilizing is where my margin goes.

How did you explain the at-risk diligence to whoever funded this? I'm learning how private money actually moves and "I need $6,400 for inspections on a building we will probably not get" seems like the hardest conversation in the deal. Was this your own cash, and would an outside investor have sat still through the first loss?

The $7,500 to unit 3 is the line that stuck with me. I've been sketching a clean-out and transition service aimed at estates and everything in your post says the value is in the person handling, not the dumpster.

Financing is where I'd expect this to fall apart and you skipped over it. A lender underwriting to in-place income at $48,600 gross does not get to $622,000 at 70% loan to value on debt coverage alone, which is presumably why you were at 30% down. Did you have a commitment before the hearing with the price left open up to your cap, or did you bid and then go find the money? Because a confirmed sale with a fixed closing date and no financing contingency is a bad place to start a loan application. Anyone copying this should get the price flexibility written into the term sheet and confirm the current terms with their lender rather than assuming.

Five units in a 1920s building in an inner ring suburb makes me want to see the certificate of occupancy. A lot of those were three or four units on paper with a basement or attic conversion added in 1961 by someone who never pulled a permit, and it only surfaces when you apply for a rental license or a lender's appraiser counts doors. Did you confirm all five are legal units before you bid, or is that in the $400 of title review?

@ledger got to the ratio I'd have used. The piece I'd add is that the rent gap costs money to harvest. Five units at $6,800 a turn is $34,000 of capital plus five vacancies. If you assume 45 days down per unit at $1,100, that's another $8,200 of lost rent, so call it $42,000 to get from $4,050 to $5,600 a month.

Against $18,600 a year of additional gross, the payback on the harvesting spend is a bit over two years before you've earned anything on the purchase discount itself. That's fine on a long hold. It's fatal if you underwrote it as immediate. Which did you underwrite, cairn?

I want the terms of sale exhibit, not the summary. In the confirmation packets I've read, the deposit is forfeitable on buyer default with essentially no cure period, and "delivered occupied" language is doing more work than most bidders realize because it can also foreclose your ability to claim the estate misrepresented occupancy afterward. Whether any of that holds is state law and how the court's own local rules read, so an attorney where the property sits is the only real answer.

Cairn, what was your deposit at the hearing and was it certified funds in the room that morning?

I read this whole thing hoping there was a passive version somewhere in it and there isn't one, is there. Showing up to a courtroom to bid against strangers on a building with a broken sewer line is a job.

@marlow no, there isn't. But the question I'd ask cairn is whether the same building was available without the courtroom. Estates with a personal representative who has full authority sell like normal listings in a lot of states, and the discount comes from the heirs wanting it done rather than from the drama at the hearing. If the boring path gets you 80% of the same spread, the $10,500 of losing diligence starts looking like a tax on the exciting version.