David: Alright guys, welcome back to Discount property Investors. This is your host David Dodge and I am joined here today with Mr. Jonathan Manley. Hey Jonathan, how are you doing, bud?

Jonathan: Hey, thanks for inviting me today.

David: Absolutely, man absolutely. So guys we definitely want to let you know that you can check us out at DiscountPropertyInvestorpodcast.com if you are looking for wholesale properties in the St Louis area. You can subscribe to our buyer's list at DiscountPropertyInvestor.com. Last but now least, check out the freewholesalecourse.com, if you are looking to get into wholesaling properties in your neighborhood or your city. So, Jonathan, we are happy to have you today on the show. Thanks for coming, how are ya?

Jonathan: Good David, thanks for having me again, I am proud to be a partner here at Discount Property Investors and selling properties.

David: Awesome, well today's topic is going to be about auctions. So we are going to jump right in. So we want to educate our listeners and viewers about auctions. What are auctions? How do they work? How can they benefit investors being able to buy properties at a discount? So let's jump right in Jonathan, what -- let's talk about auctions. First and foremost, what are they? And why do they occur?

Jonathan: Sure, you know what? I can tell you a story on how -- what I know about auctions, how I got interested in auctions and what I am doing now with them. I have been in real estate 25 years and -- always looking for new ways to buy properties. I guess maybe about 10-15 years ago I got interested -- I went to my first auction. It was a house that -- they were auctioning. You went and the auctioneer did his pitch right there in front of you.

David: Did you bid on this particular house or did you just go?

Jonathan: So I -- in the beginning, I was just learning what it was all about. And then -- so I started attending more and more auctions. The problem was I did start bidding on them, the problem was -- I was never able to purchase one because there was always somebody willing to pay more than I would.

David: Right.

Jonathan: So -- that is the beautify of an auction; there is always somebody -- that's why an auction works --

David: There are pros and cons obviously. You got to look at it from the standpoint of the -- the sellers or the bank or the -- city of it is tax sale auction.

Jonathan: Exactly.

David: They put the property out via an auction because they know there is going to be multiple people interested in buying that property and it is going to get bid up.

Jonathan: That is exactly it. It benefits the seller for sure. But as a buyer, if you -- go in with a reserve price in mind, it can benefit you as well.

David: Right, absolutely.

Jonathan: And that was one of the reasons I have got so interested in auctions. Back in the day -- you had a couple of choices. You had -- a couple of -- you could go to the foreclosure auctions --

David: Right.

Jonathan: -- down in the courthouse. Or -- there were a couple of companies out there that -- did --

David: Tax sale auctions?

Jonathan: I never went to any of those but I went to -- state property auctions.

David: Okay.

Jonathan: So anyway, what really got me excited about auctions -- I kept questioning -- I used to buy a [00:04:19.04] property. Real estate on the bank on the property. I had always questioned why -- so I put an offer in on a house, and -- the bank -- so did other buyers. The bank would come back to me and ask me for my highest and best officer.

David: Okay. So essentially they want you to bid against yourself?

Jonathan: Exactly.

David: You put your offer in, there may be other offers or may not be --

Jonathan: Sure.

David: Say, hey come back with you highest and best, sometimes that's a good thing --

Jonathan: They say there are multiple people bidding on it, maybe they would all come back with the same offer. But you wouldn't know and I always thought, why doesn't the bank do it publically so -- they could get people bidding against themselves, against other buyers? That is the key to an auction is to get the most value out of the property by getting people excited on bidding against each other. So I decided what a great way to maybe sell my own properties.

David: How long ago did you start doing that?

Jonathan: That was about three or four years ago.

David: Okay.

Jonathan: So a quick story, I bought a little house off of Hampton on Marquette, near [00:05:30.21 - inaudible] park here in St Louis. I paid $67,000 for the house. I thought to myself -- what could I do to get people excited about this property? I decided, what gets people excited about a property? Low price.

David: Low price.

Jonathan: Yeah.

David: Right.

Jonathan: I had a comp next door, it was $113,000.

David: Awesome, awesome.

Jonathan: So I figured, let’s put this house out at $50,000.

David: Right now Jonathan is an agent and a broker.

Jonathan: Yes I am.

David: So he was able to list that property if he wanted to, but instead you put it up for auction?

Jonathan: I put it up for -- so I had to go back a little bit. I build my own action site. Housebrokerauction.com. So I put the house out at my own site for $50,000.

David: Wow, you put it out low.

Jonathan: I took a chance.

David: You bought it for $69,000?

Jonathan: $67,000.

David: $67,000. Wow, wow!

Jonathan: It scared me to death.

David: Wow!

Jonathan: Scared me to death, but I had to get people excited about it.

David: Hey, that's a great way to do.

Jonathan: So --

David: Did you have a reserve at 50 then?

Jonathan: I didn't have a reserve.

David: So you could have essentially lost some money on that one? Wow.

Jonathan: I had a sneaking feeling that I might do okay, or at least maybe -- I had a little relief because after day one -- it had been bid up to 60,000.

David: Okay.

Jonathan: So, I was only 7 away from what I paid for it.

David: How long did the auction go for?

Jonathan: So I did the auction for 7 days.

David: Okay.

Jonathan: And I held the property open for three days.

David: Okay.

Jonathan: Three days in a row, when it was all said and done, I ended up getting 32 bids for the property and sold it for near 90,000.

David: Holy cow, that’s awesome!

Jonathan: Yeah.

David: That's great.

Jonathan: So I had people excited about the property, they were bidding against each other and the auctions system works. It's like a reverse sale.

David: Right.

Jonathan: I say traditionally -- we are -- I might have put that house out at 90,000 -- as a traditional sale and -- what happens? Everybody wants a deal.

David: Everybody wants a deal, right.

Jonathan: So they come in lower usually. Maybe they would have given me 80,000 for it. But it's --

David: Additionally too -- you set the standard with the buyers that -- this house will be sold on this day via the highest bid.

Jonathan: Yes.

David: Whereas if you listed it, you know -- you may have gotten offers and you may not have accepted those offers, you may have countered. And that process could have taken a lot longer. It could have sold quick, it is always possible. But it may not have. But with the auction, once the bits start coming in, you know that those buyers are going to pay those prices.

Jonathan: Yes and -- they are still getting a deal.

David: They are still getting a deal.

Jonathan: Because -- you know, the house next door was comped out at 113, 115 so -- you know, still got $25,000 in equity there.

David: Right, that’s awesome.

Jonathan: So --

David: Very cool.

Jonathan: You know, auctions work and -- it is one valuable tool that I use in my business and have brought here to Discount Property Investors --

David: Yeah we love it. So you have a website that we are using now. It's called Housebrokerauctions.com right? Is that correct?

Jonathan: Housebrokerauction.com.

David: House broker auction dot come, singular? Awesome.

Jonathan: Yes.

David: And -- we occasionally will put properties up on that site and then we will send it out to investors to drum up some interest, we have sold several properties via your auction site. It is a great resource.

Jonathan: Well again like you said, the benefit -- one of the benefits is that we have a set date that we are selling on. So --

David: Get your bid in.

Jonathan: Get your bid in, go see the property, bid on it -- you can close quickly with an inventory level that we are at, a short inventory right now. It is a great avenue for anyone that is looking for a discount property to -- purchase properties.

David: Now is the house broker auction site that you have -- is that specific to St Louis only? Or can anybody take advantage of that site, how does it work?

Jonathan: Anybody can take advantage of that site. We are in the works right now; I do have a partner -- real estate -- internet auctions.com. You can go there and list your property for sale as well.

David: So Jonathan, if someone wanted to -- take place or take advantage of the auction site you have built out, how could they contact you to get their property listed? If they go to housebrokerauction.com, is there a form on there? Or an e-mail that you would like to give out?

Jonathan: Yes, sure. [email protected] or call me directly, I always answer my phone. 314 - 276-8424.

David: 8421, awesome. In the event that somebody calls you and they say, "Hey, I have this property I want to auction." Then that gets listed on the site, is it then their responsibility to then share that link to -- their potential buyers if they are outside of the St Louis market? Or --

Jonathan: Well that helps. Obviously, any marketing -- the more -- how an auction works, the more -- interested, the most exposure you get -- the more bids you are going to get. That's what I found on my own site is -- if we can get -- it's like e-bay for houses. You have got a counter in there, how many times has the site been hit? --

David: So you have essentially built out the back end of it to where you can put the property up there, it has a timer, people can log in and create their own account, they can bid, and it does auto bidding too right? To say, here is my next bid, here is where I wanted to start, and if somebody else bids then it will automatically bid for them.

Jonathan: That's my tip for anyone that's buying an action property; go in knowing what your reserve price is. It doesn't hurt to put in your reserve price and the system will bid for you. You won't get caught up in the excitement of other people bidding.

David: Right, that's a great point, because I am sure it happens all the time, where people go to the auction and they get excited, they end up paying more than they wanted to pay. They end up -- a lot of auctions -- at least here in St Louis -- the properties actually get bid up -- to pretty close to retail sometimes.

Jonathan: Sometimes.

David: You know, and it's --

Jonathan: Which doesn't mean that they are not worth that -- but that is something -- there is benefits to both being a buyer and a seller in real estate -- and auction.

David: That is so true. So Jonathan has an awesome site, housebrokerauction.com. Again, you can contact him at [email protected], or via phone -- what's the number again?

Jonathan: 314 - 276 - 8421.

David: Awesome, connect with him, he will be more than happy to get that property up there for you. Then essentially what you can do is you can share that with your buyer's list, you can publish that link on Facebook or Craigslist or wherever you are at in your market. If you are in the St Louis market we can even help you get that exposure by putting it on our website, Discount property investor and send it out to your buyer's list as well. But auction is a great strategy guys. Check it out, and there is also a lot of auctions probably in your city -- that are happening daily, weekly, sometimes they even happen quarterly that you can go and you can bid on those properties live at those auctions. So let’s talk about that really quickly Jonathan.

Jonathan: I'd love to.

David: Whenever people -- let's say they go to a foreclosure auction in their city or their county, or even a tax sale auction. What does that process look like? Because I have only been to a couple and -- but I would imagine they are all pretty similar.

Jonathan: I have been to a few sure.

David: So tell us what those are like.

Jonathan: Well -- foreclosures -- is its own bird because -- each state has their own laws as far as foreclosures go, but here in St Louis, you know -- it's a live auction. You need to have at least 10% down of your maximum bid.

David: When you say that, 10% down, that means they need to come with --

Jonathan: With cash.

David: With Cash or cashiers check. So how do you determine what 10% is? Because you don't know what it is going to get bid up to.

Jonathan: Well you should -- when buying real estate you should -- again, know your reserve price.

David: Essentially what you are doing, you are going to come with 10% of what you are willing to pay? So if you pay less of what you are willing to pay, then that is no longer 10% -- but it is at least 10%?

Jonathan: At least 10%, yes.

David: So that's what matters. Every auction may have different rules guys, so maybe call ahead -- or e-mail and figure out what their requirements are. But typically they are going to want a 10% deposit in the form of cash or cashiers check -- right when you win that bid. They are going to want it immediately. Typically they are going to want you to wire the rest of the money over with 24 hours. Typically same day or they may give you a --

Jonathan: Same day usually.

David: They may give you a 24 hour period, but typically they are going to want it that day. And then what happens next? So

Jonathan: Well -- I would caution people -- if you are not familiar with bidding down at the courthouse at a foreclosure auction -- maybe touch base here with Dave or any of us at Discount Property Investors -- because it is not something you just got in and do. It is a learning process. So get some help first, go in with a game plan, don’t go in -- naked so to speak.

David: That's a great point because a lot of people do. They go to the auction, they see something that they want, they don't do their due diligence, they don’t go to the property -- I am not saying that you need to go and break into the property, but you should at least drive by. You should try and maybe peak in the windows, get an idea of the condition of the property. Just because a property has a low starting price -- doesn’t mean that you are going to get it for that. It could potentially get bid up. So do your due diligence, be prepared and -- do some research prior to going, absolutely.

Jonathan: If you're new in the business in general, one of your best avenues of real estate here is right here at Discount Property Investor.

David: That's right.

Jonathan: This is probably a great place to start -- not to -- sway anyone from going and learning about auctions down at the courthouse, but -- let us know first and we will definitely be willing to teach you.

David: Absolutely. So let's just recap real quick. So there is -- auctions at the court house.

Jonathan: Yes.

David: Those are typically like your foreclosure auctions right?

Jonathan: Those are going to be your foreclosure options yes.

David: Okay.

Jonathan: People that are unfortunately losing their homes to the bank. The bank sets a bit -- the bank will give that homeowner 21 days to -- pony up their mortgage or they will set their own bid and -- you can buy it for that, or you can bid against other people that are buying it for that.

David: Right. So those auctions are typically done live, then you have tax sale auctions. Those auctions don't happen as frequently. They typically happen on a set day or set number of days throughout the year. Those auctions are properties that are being auctioned off by the county, and or the city for individuals that haven't paid their property taxes in 2,3,4,5 years depending on the rules and legislation that is in place in that area. So every area is a little different.

You also mentioned that there could be a state sale type auction.

Jonathan: Right, that's --

David: You hire a third party individual; there is no state or bank.

Jonathan: That is the most common type of auction where you go, you will see the auctioneer -- doing his pitch. I can't do it.

David: That's the beauty of technology. You don't need to do it.

Jonathan: That's why I do it online.

David: Right?

Jonathan: But -- you know that's -- those are frequent; there are plenty of places you can go for those type of auctions. There are links out there to find those types of auctions. But they are plentiful.

David: Right. If you don't --

Jonathan: They happen on a daily basis.

David: They happen on a daily basis, the state sale type of auctions, absolutely. And then, of course, there are some other auctions sites that are more -- national type sites that -- are auctioning off properties. Now, what type of -- what kind of properties are being auctioned and why?

Jonathan: Sure -- so --let me give you the just of it. So -- auction.com is obviously one of the biggest, largest -- auctioneers in the country. I read a story, they were given a 15 million dollar grand -- from Google to build out their site, and that's how they started.

David: Wow.

Jonathan: Typically they are going to be your -- they are basically an advertising platform for -- the -- foreclosure auctions.

David: For the foreclosure auctions?

Jonathan: Yeah, so --

David: So each city and county that does these, they use it to kind of broadcast out -- what is going to be there.

Jonathan: Exactly.

David: Okay.

Jonathan: What's going to be there? So that's auction.com, they are your foreclosure auctions. Some of the other ones are -- you might have heard of Hub Zoo or [00:19:30.13 - inaudible], those are two -- Hub Zoo is a -- REO asset auctioneer.

David: So they only auction properties that -- the banks own?

Jonathan: Correct.

David: Got it.

Jonathan: They --

David: So the banks have already foreclosed on these?

Jonathan: If I am correct, I believe they are US bank owned properties.

David: Oh, just US bank owned? And that is Hub Zoo? Okay. What is REO for people that are listening and watching that don't know?

Jonathan: Sure, REO is a -- after the foreclosure process -- if a property doesn’t get sold at the foreclosure auction, it goes back into the bank's inventory. And then it becomes what is called 'Real estate owned' or REO properties.

David: So the bank essentially just owns the property.

Jonathan: Owns the property.

David: Got it.

Jonathan: Yes, they foreclosed on the previous owner and --

David: Just hasn’t sold yet.

Jonathan: They don't want it in their inventory, so they are looking to sell it.

David: So REO's are probably a great way to get some properties at a discount.

Jonathan: Absolutely.

David: But what typically happens with that Jonathan? So if you have an individual -- lives in their home and they get foreclosed on -- and it doesn’t get sold right away and the bank takes that property back into their inventory -- what is the process? Do they usually hire an agent to then list that?

Jonathan: They do, and I do that. So the process is -- obviously they have to get a clear title first.

David: They want to vacate that home too right?

Jonathan: They want to vacate the home. That's their first.

David: Do the eviction process.

Jonathan: That's their first step, they hire an agent to check on whether -- sometimes the homeowner will leave on their own.

David: Sure. Best case scenario.

Jonathan: Put up -- they might have put up an effort to -- fight it. But sometimes -- they go, they are gone already.

David: Right.

Jonathan: Before the foreclosure process happens.

David: Sometimes they have to evict.

Jonathan: They do.

David: Right.

Jonathan: That is an unfortunate case but -- and then also I have gone to a home and someone is still there. The bank will sometimes do what's called 'cash for keys' -- maybe there is a tenant there, maybe it was a rental.

David: Could be.

Jonathan: We offer some moving expenses for them to leave. So the bank is going to do whatever it takes -- they are not just going to come and -- they can't just come and kick you out that straight day. So they -- they are willing to help usually.

David: Right. So then -- once the tenant is out and the property is vacated, and it's in the bank's inventory -- do they typically -- they then hire an agent to get that property listed --

Jonathan: Already hired.

David: Oh, you're already hired, okay.

Jonathan: Yeah we are already hired, so what we need to do then is -- to do -- a price opinion on the property, figure out what we feel like it is worth on a retail level. And then do a BPO which will give a value of the way it sits.

David: What does BPO stand for?

Jonathan: Okay, Brokers Price Opinion.

David: Brokers price opinion. So essentially BPO and correct me if I am wrong, but that would just be like an appraisal of the property without you going to the property and walking through it, you are just kind of looking at the comps right? Or am I wrong?

Jonathan: No, I have seen the property.

David: Okay.

Jonathan: It is basically -- an appraisal of the property without being --

David: A licensed appraiser?

Jonathan: Without a license.

David: That is good information because I didn't even know.

Jonathan: In some cases -- they will -- the bank will hire an appraiser and take a brokers price opinion.

David: Okay.

Jonathan: So they will get both opinions.

David: So they will have multiple opinions? Okay. So then the property gets listed -- does it go back to auction at that point? Usually, if it doesn’t get sold at auction --

Jonathan: In some cases -- it can go to auction; for the most part, it gets put in the MLS. Which -- brings me to my original -- point of -- I am not sure why all banks don’t put their properties out for auction, but that's what they do. They are traditional; they do a traditional sale sometimes.

David: Lists it with an agent and then take offers --

Jonathan: Like I said, US bank, Hub zoo, they do put theirs out for auction so

David: Right.

Jonathan: It is up to each asset manager what they feel is the best marketing --

David: How they are going to recoup the most money for these --

Jonathan: Right.

David: These assets that are being held in their inventory that they don’t necessarily want.

Jonathan: Correct.

David: Because to them it's not an asset, it's a liability because they are having to pay the property taxes and probably having to insure these properties, having to pay the utilities and -- it is an expense to them every month.

Jonathan: They do not want that property inventory.

David: Right, and often times they are willing to sell the property at a loss.

Jonathan: I believe they do --compensated for their losses.

David: They do, it's a tax write-off at the very minimum to them.

Jonathan: I believe it is.

David: So they are able to recoup some of that loss back on their taxes and -- but yeah it is a great way to -- invest in the properties as well as sell properties as Jonathan mentioned earlier. It is a good strategy to move properties as well. We have done a couple of auction deals that I am fairly confident we could have wholesaled, and or we could have listed and got the deal done. But the auction in certain scenarios is the best strategy because -- you can move it quickly, you can drum up a ton of interest in the property, and you can actually get individuals -- fighting for it is the wrong word, but bidding against each other to get that price raised up to either a good number, and or just get it sold quickly.

Jonathan: It is a benefit to both buyer and seller.

David: To both buyer and seller, absolutely. Well guys if you want more information about listing a property on Jonathan’s site, housebrokerauction.com. Send him an e-mail at [email protected]. Or you can give him a call, one more time, what is that Jonathan?

Jonathan: 314-276 8421. Or like David said, you can go to housebrokerauction.com; do we have a link on Discount Property Investors?

David: What we will do is put one in the show notes on here.

Jonathan: Okay, great.

David: So if they go to the website they can get a direct link to that. Jonathan can get that property up there for you, and all the details on the pricing is located on the site, and we can go from there. So guys thanks for listening today, we appreciate you supporting us, and -- again, don’t forget to check out DiscountPropertyInvestor.com to get on our buyers list if you are looking for properties here in the St Louis area. As well as thefreewholesalecourse.com if you are looking to get into wholesaling. Thanks guys, we will talk to you later. We forgot to do the quote, what's the quote?

Jonathan: "You can't get what you don't ask for."

David: You can't get what you don’t ask for. I love that.

Jonathan: Yeah.

David: I love that, alright guys thanks for listening.