Bidding without running a Proforma – There are several types of Proformas. Proformas are projections of profits and losses that are used when buying real estate. They force investors to do market research and cost underwriting to determine the highest and best value.
Bidding without checking property taxes and uncapped assessments – Property taxes are uncapped (i.e., the taxable value of the property is increased to the SEV “State Equalized Value”) after a purchase. In order to determine what the assessment will be after the property is bought, it is crucial for the current tax bill to be examined.
Bidding without checking special assessments – Special assessments survive all auctions and sales. For example, investors who buy vacant, boarded up houses may be subject to having their new purchase demolished after acquisition. Once demolition starts, there is nothing you can do to stop it. Always check Special Assessments.
Bidding without checking sewer lines – Many older homes may have some sewer line issues after being unattended for a period of time. If you are a serious bidder, have the sewer lines checked or assume that you will have to replace them ($3,500 – $5,000).
Bidding without checking Building Safety & Engineering – Building violation fees continue with the property after a sale. The purchaser assumes full responsibility.
Using unqualified contractors without obtaining a permit – There is no excuse for doing major renovations without pulling a permit. To ensure the job is done correctly and safely, insist on a licensed, qualified contractor who will pull a permit. The inspectors will see if the job is done correctly. Finally, make it a practice to get three estimates for a job. The more information you have the better.
Underestimating rehab costs – This is where the three estimates pay off. Always add a 10-20% contingency for the unknown.
Underestimating carrying and soft costs – Utilities, cutting grass, security, taxes, and insurance are some of the major costs that buyers ignore.
Bidding without checking title – Quieting title is big business in Wayne County. It appears as if the title agencies decided not to ensure any foreclosures from the Wayne County Auction unless they were judicial. The cost to quiet title (i.e., clearing title to ensure that there are no liens or levies against the title, nor disputes over the property’s ownership) is about $1,500. At a minimum, always search the title. It’s very affordable here.
Emotional bidding – When bidding emotionally, you bid for all the wrong reasons (i.e., getting carried away because of personal attachment, revenge purposes, trying to rescue someone, and/or sending good money after bad money). These reasons will cause you to bid, or even overbid, when you should not. Do your homework. Get rid of the emotions. Run your proforma(s) and know the maximum you should pay before the bidding even starts.
There are at least two more serious mistakes bidders make, and one of them is the most notorious. If you are interested in finding out more about avoiding mistakes, successful bidding strategies, great research/underwriting techniques, and how to win before you bid, continue by clicking here.