Shortly after giving a talk to a local real estate investors club in Ann Arbor about getting started as an investor, one of its newest members, Sherry, approached me with a few follow-up questions. For starters, she wanted to talk about investing in real estate later in life and whether it was truly never too late to begin. She’d retired several years earlier and, wanting to stay busy and fulfilled, was looking for a second career she’d love as much as the first. I assured her that investing in real estate after retirement—and, really, anytime—was a good time and encouraged her to get started. Then, she asked about real estate auctions in Michigan and if that’s where she might find the best-discounted deals on properties. On that subject, I was less inclined to give her a simple yes or no. Instead, I offered to tell her what I knew about some of the auctions around the state and to give her my thoughts on where she could find properties that yield potentially good returns.

Buying Investment Property from Michigan Real Estate Auctions

New investors, like Sherry, often turn to real estate auctions as a means for growing their real estate portfolios because of the opportunity to buy properties quickly and cheaply. There are no leads to chase and deals to massage. There are only homes on which the former owners were unable to pay their taxes or the mortgage and that have since become available to the public for the highest bid. And, because the previous homeowners tend to be financially distressed, houses on the auction block tend to be in disrepair. That makes these properties ideal candidates for rehabbing and reselling—a real estate investor’s dream.

But, you might find the reality of buying these auction homes and renovating them is not as easy, or as cheap, as it first seems. To give you an idea of what I mean, here’s what I reviewed with Sherry regarding three of Michigan’s larger real estate auctions:

Detroit Land Bank Authority

The Detroit Land Bank Authority (DLBA) auctions vacant, abandoned, and foreclosed properties for the purpose of reducing neighborhood blight around the city. Online bids start at $1,000 and go up in $100 increments, giving you the opportunity to buy one of these homes for very little money from the convenience of your own home. It’s a successful program, too. Over 1,700 properties have been sold—mostly to real estate investors—for renovation or for destruction. If you can get your hands on at least one of them, you’ll be able to count yourself among the successful bidders who’ve bought a land bank house.

But, getting a hold of one land bank property isn’t easy to do—if you even want to do it at all. Qualifying to bid is tough since you have to show that you’re willing and capable of renovating the home according to the DLBA’s strict guidelines. If you do qualify, a significant hold is placed on your credit card and credited towards your 10% deposit should you win. And, if you win and decide not to pay, or pay later than the three-day deadline, you forfeit your right to the money charged to your card and lose the property, too. The same thing can happen if you don’t close in 30 days or neglect to complete the rehab within six months—something that’s difficult to do since these houses are in such decrepit, even dangerous, shape. That may be why so many of them get demolished instead of revitalized, which won’t do much to help your ROI.

Washtenaw County Sheriff’s Sale

The Washtenaw County Sheriff’s Sale auctions homes in foreclosure as a part of the mortgage holder’s effort to recoup some of its costs. Auctions are held every Thursday at the Judicial Courthouse in Ann Arbor, with information about the properties made available the afternoon before. Buying a foreclosure auction home from Washtenaw County allows you to potentially purchase property in the area below market value, then renovate and resell it for a potentially very nice return.

Unfortunately, there are a number of issues with this auction that could also hinder your ability to see good returns. Not knowing anything about the homes going up for sale until the day before, for example, gives you little—if any—time to properly evaluate a property and determine your maximum bid. Even then, your max bid won’t matter very much if the foreclosing lender submits a bid that’s higher. Mortgage holders get first dibs and everyone else has to beat their numbers.

And, if you do succeed in buying the property at a price that even the bank won’t pay, the previous owner has six months to one year to redeem the house. So, though you will have closed on the home and paid in cash, you can’t take ownership or perform any renovations until the Sheriff confirms the property is really yours. But, by that time, other opportunities to invest your funds would have passed you by—and, quite possibly, the market you wanted to take advantage of, too.

Tax-Sale.info Michigan Public Land Auction

The Michigan Public Land Auction at Tax-Sale.info auctions homes that have been foreclosed on for nonpayment of taxes in over 60 Michigan counties. Sales happen either on-site, at the property being auctioned, or online. Most of what you need to know to bid on a house can be found on their website. There, you’ll find buyer registration forms, state-mandated opening bids for properties, and even pictures. So, by the time a sale comes around, you’ll have some idea of what to expect if you win the bid and whether realizing returns might be possible.

The problem, however, is that having some idea of what to expect isn’t good enough to justify the risk of investing in residential property from this sale. You will not be able to physically inspect the home before you bid. So, unless the property photos tell the whole truth—and most do not—you could end up with a house with too much damage and not enough potential upside to make closing on it worth it. But, since full payment is due within 30 minutes of the sale, and no refunds are ever issued, you’re stuck with whatever you win. And, in addition to a money pit, you could find yourself saddled with government liens that weren’t extinguished prior to the auction or tenants that must be evicted. The next thing you know, your cheap deal has become a very cheap trick. But, there’s nothing funny about losing money.

Unfortunately, the problems you might encounter by trying to buy property from these and other auctions aren’t limited to their terms of sale. The homes themselves are usually in pretty poor condition because their previous owners rarely afford any major repairs or even some minor upkeep during their time of financial struggle. That can initially look like a plus when you’re in the business of finding distressed properties to rehab and resell. But, when a home has been sitting neglected, then vacant, for months or years at a time, an inexpensive repair bill isn’t likely in your future. A high cost to renovate, and the resulting loss of your potential returns, however, just might be.

The truth is, you and your ability to grow your business are going to be much better off if you can find a way to approach distressed homeowners before they lose their house and make a connection that makes a difference to you both. Like I told Sherry, there’s an easy way to do it.

Where to Buy the Best Deals Before They Go to Auction

As a new Michigan investor, I never got a great deal at a real estate auction. And, I told Sherry as much. On more than one occasion I was outbid by other investors willing to pay too much for a house they knew too little about. Sometimes, it was even the lender that won the bid. At other times, no one got to bid because the auction was canceled or the owner found a way to get current at the 11th hour. In the end, I grew tired of spinning my wheels and decided to find a way to buy the best deals before they go to auction.

And, I found it by becoming an independently owned and operated HomeVestors® franchisee. Now, I have access to some of the best marketing tools and resources that I need, like the nationally-known “We Buy Ugly Houses®” ad campaign that drives motivated sellers to me before their properties ever end up at an auction or become too costly to repair. So, I have the chance to buy and renovate at a good price and help a homeowner out, too. It’s a better way to do business and an easier way to potentially yield returns. In fact, my fellow franchisees and I have bought more than 140,000 houses since 1996.

Connect with distressed homeowners by first connecting with one of the best sources for qualified leads. Call or email HomeVestors® anytime to request more information about becoming a franchisee, too.

Each franchise office is independently owned and operated.