Buying a property on the courthouse steps can sound daunting to first-timers. Familiarizing yourself with the process can provide you with great opportunities and a good source of investment properties to purchase. The process itself is quick and easy, but the magic happens during the prep work. Once you crack the code, you’ll be able to tap into a source for real estate investments that are often overlooked.
As a private lender, I have firsthand experience watching things unfold on the courthouse steps. After the 2008 real estate crash, we saw a massive jump in foreclosures and properties being sold on the courthouse steps. I began frequenting the sales on the courthouse steps to solicit business from the real estate investors there. Courthouse step buyers purchase properties using all cash, and many end up needing capital to finance the improvements.
Here’s what you need to know about the process.
The first thing you need to know is that you need cash to purchase the property. Before going to the courthouse, make sure you’re liquid and able to bring cashier’s checks. You’ll want cashier’s checks in different denominations because the auctioneer won’t be giving you change. Once you’ve settled on a rough budget, you can start researching homes. Different counties have different websites for you to see what auctions are coming up. Do your research on the repairs and make sure there aren’t any odd liens that could jeopardize your equity.
Purchasing a property through auction requires a team. The most important member of this team is usually someone familiar with title and escrow. Buying a property on the courthouse steps comes with high risk because there could be other liens attached to the property. For example, if a lender is foreclosing from a second loan position, the first lien will still be attached to the property after purchase. This means that you’ll be beholden to the first lien attached to the property and need to pay it off.
This is where a title and escrow partner comes in handy. They can keep an eye out for liens against properties and advise against high-risk scenarios that eat away your profits or land mines that end your flipping career. Other team members should include contractors and handypeople who can quickly put together a professional rehab budget and timeline. Once you have assembled your team, scoped out the property, drove the property to assess the extent of the rehab, and done all your research on the deal, you’re ready to bring your cash to the courthouse steps.
On the day of the auction, you’ll want to arrive early. There will likely be a bunch of other people wearing earpieces talking to their escrow officers and money partners. Don’t be intimidated!
Come auction time, you’ll see the auctioneer walk up the steps. They usually come dressed in normal clothing—you’ll miss them if you’re not paying attention. Once they set up their laptop, the other buyers will begin to gather around. The auctioneer reads out the details of the property, and you make your bid. You’ll be bidding against others, so make sure you set a cap for yourself on what you’re willing and able to offer. Don’t get emotional, and don’t go over your calculations. Trust your preparation.
If you make an offer, be ready to pay. The auctioneer will ask to see your cashier’s check. Once you win the bid, hand over your cash to the auctioneer, and the property is yours!
Now that you own the property, you’re free to leverage it. Investors will often immediately get a cash-out refinance with a hard money lender to recapitalize their coffers or to do the rehab. Traditional banks shy away from these because the property conditions are usually questionable. Once you have your cash out, you rinse and repeat.
If you’ve purchased a property and need money to complete the rehab, fill out Socotra Capital’s application for a hard money loan.