Over a plate of fried fish and okra at Willie Mae’s Scotch House, my old college friend brought up the local real estate market. He’s an aspiring real estate investor, though that doesn’t stop him from thinking he knows just about everything about the business I’ve been in for over a decade. He started telling me about how to go about purchasing distressed houses, touting the benefits of buying from the New Orleans Sheriff Sale.
While I cherish my friendship with Steve, I had to set him straight. It wasn’t easy. He doesn’t like to be schooled—maybe why he graduated late—but I’m his friend, but it was important. I didn’t want him to have to learn the hard way that the NOLA Sheriff sale is not the best option for finding investment property.
Risks and Rewards of the New Orleans Sheriff Sale
There are some benefits that attract investors, particularly those getting their feet wet like Steve. A big one is predictability. Every Thursday at noon the New Orleans sheriff holds an auction of distressed properties so you know when you can go make a bid. And, with such a high local foreclosure rate, you’d imagine the NOLA sheriff’s auction would consistently have distressed properties available for sale.
But, that doesn’t necessarily mean the auction block is the best way to buy them. Here’s why.
Cost creep. You may think you’ll get a low price, but that’s not guaranteed. If the house has already been appraised, you’ll pay a minimum of ⅔ the value. You could still potentially profit from that deal after repairs, but that’s only the minimum bid and it’s bound to go up. You’d have better luck focusing on a property that hasn’t been appraised since you’ll only pay the cost, the commission, and any superior claims–usually around $2,000 to $5,000. But, if there are any undisclosed outstanding liens, then you will buy that burden as well. As the Sheriff’s office won’t warrant a clean title, due diligence is essential.
Competition. You aren’t the only one hoping to get a deal on a distressed real estate. It’s common for several investors to show up to an auction, driving the price of the property higher and diminishing your potential return. Caught up in the excitement of it all, you could end up overpaying for a property.
I almost made that first mistake that way back in ‘11, at the first auction the NOLA Sheriff’s office held. What I thought would be an easy opening bid of around $50K for the historical Tureaud House in Treme turned into an all-out seven-person bidding frenzy that I barely got out of. The buyer ended up paying almost three times the opening bid. If you do that, too, you won’t see much upside on the auction deal when you factor in the costs of repairs.
Liquidity. You also need to have enough cash on hand to at least cover the 10% down payment if you win. Some properties require you to pay the entire amount upfront, something that should be listed on the auction announcement. If that’s the case, you need to have a great relationship with your hard money lender, good enough that you know they’ll back you up. If you put down a down payment on a property you can’t fully cover, then it’s going back to the auction block—and you risk losing your deposit altogether.
Auctions can be viable if you’re looking to do a deal for bragging rights. But, if you want to have a sustainable real estate investment business, you need volume. You can’t spend days researching a property only to get outbid at the auction. You need steady access to distressed properties.
A Better Approach to Investing in Distressed New Orleans Real Estate
Steve finally got what I was saying about the New Orleans Sheriff auction—after about six months of showing up on Thursdays and coming away empty-handed. In the meantime, I was buying houses. He didn’t have to ask me how—I’d been telling him about HomeVestors® since I became an independently owned and operated franchisee. You see, at HomeVestors® you don’t have to waste time sifting through the local newspaper to find properties to purchase at auction. Nor do you have to do a bunch of due diligence only to come away empty-handed.
HomeVestors’ nationally-known and trusted “We Buy Ugly Houses” marketing campaign has been around since 1996. So, struggling NOLA homeowners know who to come to when they need financial relief. They can contact a local HomeVestors® franchisee, like me, and get a fair offer for their property. That’s how I get good properties before they go to auction. Now that Steve joined HomeVestors, too, it’s all he can talk about when we go out for cocktails.
If you’d like to get more reliable leads, request information today on how to join us at HomeVestors!
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