How to win a HUD auction

Due diligence reveals great news

We’re proud to report the Tuesday before Thanksgiving, one of Blackacre’s investor clients won a HUD auction.  We showed the property the weekend before and had a nice chat with the neighbors who shared some interesting facts about the property.  Stuff you can’t learn by reading the Property Condition Report.

What did our investor learn?  Most significantly, the home had been vacant for over 7 years.  And a winterization notice the client found on the basement floor confirmed the water was turned off in 2011.  This particular property is a condo in a 3-unit building which was built in 2004.  So the home was technically 14 years old but only had 7 years of wear and tear.  That was a pleasant surprise!

BRRRR strategy is best

We produced a detailed market analysis by looking at recent sales and rental comps.  With that information, our client determined a price that would work to execute on a BRRRR strategy.  This property would be considered a cosmetic rehab with the budget focused on new appliances, fresh paint, new carpets, and HVAC maintenance.

The rehab budget was estimated at 30 days and $7500.  And the potential rental income would easily meet the 1% rule of both the purchase price plus rehab and after repair value (ARV).

HUD counteroffered our bid

That Sunday night, we submitted a bid for our client.  Our experience has shown that a bid that nets HUD 80% of the list price will trigger a counteroffer.  This home was listed for $108,900 so assuming 6% in broker fees (3% to the listing agent and 3% to Blackacre) the net to HUD would have to be $87,120 which equates to a $92,680 bid.

Net to HUD refers to the amount HUD receives after all commissions have been paid plus any closing costs HUD pays on behalf of the buyer.  In this case, HUD counteroffered with a price that was 87% of the list price (net to HUD).

Blackacre did some more due diligence for our client by speaking with the listing broker to determine the level of interest in the property for other potential bidders.  With that information in hand, our client directed us to place another bid.  The next morning we were happy to confirm the bid was accepted!  In the screenshot from the HUD website, you’ll notice the winning bid of $95,060 is 87% of the $108,900 list price.

Blackacre Properties LLC is your HUD home expert

Bidding on a HUD owned property is a unique process that is best executed by an experienced broker to ensure the greatest likelihood of success.  Its a combination of art and science.  Important things we research for our clients include: who else is looking at this property?  what are the estimated repair costs?  what are comps in the area?  how long has it been on the market?  when is the next price reduction?  what will it take to trigger a counteroffer?  what will it likely cost to win the auction?

Blackacre Properties LLC is your local Boston-area HUD home specialist.  Click here for current HUD inventory in Massachusetts.