How You Can Make Bank At An Auction Usin...

auctioneer Hello Investors,

It’s Cody Sperber again coming back to you with Part 2 of this 2-part lesson. In Part 1, I explained how I came to purchase a property at a trustee’s sale (auction), and touched on some of the ins and outs of attending auctions and buying at auctions. I encourage you to head back to that lesson so you’ll be caught up for today’s follow up.

In Part 2, I want to focus on exit strategies. I try never to go into a deal without knowing how I will exit. That rule has paid off big time for me in my business.

Multiple Exit Strategies

I always go into deals well-prepared with multiple exit strategies, and this auction purchase was no exception. You can make money in any market. Houses will sell in any market, if you buy right by determining which is the best approach for that deal.

I scooped up this Willow Avenue deal at the auction for $159,200. At the time of our purchase, the fair-market value was $225K to $250K. We estimated the repair costs to be at about $20K. I used my financial partner’s money for my 30% down and my hard money lender financed the other 70%. At this point, I had put not one penny into this deal. I did get insurance, which was $67 for the amount of time I’d have it. The bill for getting the property cleaned up and secured was $470.

So, I had multiple exit strategy options for this deal:

I could put it online and market it
I could retail it and make great money – but that would take time
I could send it out to my database of investors and other wholesalers

I chose the latter, and right away I received a response. This investor had buyers, but did not have the resources to purchase on his own. It was a wholesaling deal.

Obviously, this guy saw the numbers and knew it was a good deal. He said he had a buyer for $180k. He said, “I’ll give you guys $4,500 if you’ll sign it over to me and let me take your position in the deal.”

dead Fortunately, I have a partner who is a good negotiator who told this investor: “There’s no way, because the margin is too big.” But then he turned around and gave this investor an alternative deal: “What if we take your buyer and sell it to him for $180,000 and we’ll give you $4,500 in cash as a fee for bringing in the buyer?”

What do you think his reply was? If you guessed a big ‘YES,’ you’re right. That was quick money for him. We went into contract with the investor and his buyer within two days – we closed in 10 days. Now that’s fast!

Break Down the Numbers

Let’s take a closer look at how the numbers break down.

As our exit strategy, we made the decision to get in, get paid and get out. We bypassed the option of getting in, spending a month fixing it up, and then have it sitting on the market for a good 90 days – which meant our capital would be tied up. In essence, this was a co-wholesaling deal.

Why did we bypass making GREAT money rehabbing it? This is what the numbers were telling us:

Thirty days of payments to the hard money lender cost us $2,000 total. (That was our $1,000 origination plus the payments we had to make.) We paid $67 for insurance and $470 to secure and clean up the property.

Add that to what we bought it for at auction and we’re in for $161,737. Add $4,500 to pay the wholesaler, and now our total on this deal is $166,237.

The buyer (the one we didn’t even have to go looking for) bought the property for $180,000. That brought our profit to a total of $13,763.

Under contract in 2 days… sold, closed, money in our pocket in 10 days.

That, my friends, is a good deal!

We knew the wholesaler would rehab and turn around and make an even bigger profit. He was going to put $20K into the property and spend the time to rehab it for an all-in total of $200,000. After about 90 days, it probably sold for $250K making that investor a cool $50 grand.

For my situation, the option to get in, get paid, get out and move on was the better choice. Yes, my profit was less than if I had rehabbed it myself, but my main concern was that my capital would have been tied up for 90 days. That means that amount of money was not available for me to make other deals.

Sometimes having the funding tied up for a period of time is okay – if the payoff is big enough once the capital comes back to you. But for me, a 14K payday for 10 days of work was pretty awesome.

How to Choose Your Exit Strategy

In order to make these decisions, you must first ask yourself: “Can I gain more if I consider the velocity of money?”

Here’s what Investopdeia says is the definition of Velocity of Money:

The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country’s total supply of money.

exit Here’s how that applies to your real estate deals:

When assessing a deal, you have to determine if it makes sense to take advantage of the velocity of money principle and get in, get out and get your check – because then you’d have the cash to step right into the next deal. Essentially, no time is lost between deals.

Sometimes it does make sense to hold on to the property for a bigger payday. Each deal and situation is different.

Only you can make that decision as you look over your present situation. But this principle is something to consider when you’re weighing out possible exit-strategy options.

I think this idea about the velocity of money is definitely something you should look into more – so check out these other awesome Mogul lessons here and here.

Talk to Me

Got any thoughts about exit strategies or the velocity of money. Share in the comments section below.

Go into every deal with possible exit strategies well in mind – know your options.

Learn how to negotiate offers – you won’t know if you don’t ask.

Weigh out which is better for your business – less money now (but still available to make more deals); or more money later (capital tied up for 90 days or more.)