Never Pay Retail For Real Estate…

He buys low and sells high. Playing the Impending Foreclosure Game.

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Real estate prices are at all-time highs.

Ya, no kidding Codie.

I could use a little help with the ridiculous home prices. How about you?

Am I the only one wondering, aren’t we in the middle of a pandemic? How is everyone and their brother buying houses like they are at a Supreme drop circa 2019?

Welp, in a world where the asset-holder class is fleeing to re-commune with nature (and small microdoses of plant “medicine”), exiting cities, saying see ya to lockdown states, that stampede is all looking for a new place to call home. It’s meant an explosion of residential real estate home prices in 2nd tier cities across the country.

My fiancé and I have looked at buying another property in Park City, Austin, Santa Barbara, Wilmington, Sedona. 9/10 we can’t get to the places fast enough. Is that a humble flex? Ew, sorry.

And yet, real estate is one of the spaces that can protect from inflation. Why? because if things keep inflating, real estate inflates, rents inflate. As long as you aren’t over-levered, you have good tenants, you potentially have cashflow that appreciates.

So if you, like me, have been wanting to expand your little wings outside of cities but need a deal (I HATE PAYING FULL PRICE), this is for you.


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FORECLOSURES COMING

But first, a prediction: real estate foreclosures are going to go up.

At the same time that most of us here are pumping money into assets like real estate, alternatives, and bitcoin, Main Street has been shut down.

We’re going to have fewer people like us foreclosing and more people who could have used government payouts foreclosing. It’s a tragedy. These graphs show what my gut tells me. Shadow inventory, which means foreclosures that are in waiting before they go listed to auction (it’s called moratorium).

Usually in Texas, there are 5,000 houses sold at auction each month, 2,000 sell. Right now Texas has 1,500 a month and only 50 will sell.

So already over the year, more than 20,000 vacant or abandoned homes are just sitting.

All a fancy way of saying, foreclosures are coming…

WHAT FOLLOWS is a way to play the market. It’s part of a new series at Contrarian Thinking called Contrarian Cashflow…. ooooo baby. Get excited ‘cuz if you like this post you’re going to love what comes next.

Enter My Bud Aaron Amuchastegui

“Fall in love with the problem. Anytime it’s hard there’s less competition, anytime less competition, you’ll get a better deal, anytime there’s problems as long as you have the solutions to it you can make a ton of money. And have a LOT of fun.”

Aaron is the man to talk to about real estate, and honestly a slew of other things… He’s a pretty lazy guy:

  • bought 1,000+ houses, owns 100’s of properties, acquired and grew the biggest foreclosure list out there, runs a few media businesses, authored two books and the list goes on.

But Aaron gave me one scenario that piqued my interest. He said, “Don’t buy real estate at retail Codie.” To which I replied, “That’s cute. How?”

He chuckled, “Here’s what we can do in real estate when we do it my way….”

We bought four condos for $135,000 apiece. We then found there’s two more connected. We called the other two owners and said, “Hey, we’re willing to pay you $150,000.” They were probably worth $180,000 at that time. They sold them both to us cash for $145,000.

So total investment: $830,000.
Today they’re worth … Drumroll.

$250,000 apiece

So that’s $1.5 million.

Or a profit of $670,000 on the flip.

I was hooked. How’d he do it?

The best way to get a deal… go where no one else is.

Here’s a way to play… that most don’t even know exists. Foreclosure Auctions.


Buying Houses at Auction:

We’ve all heard of foreclosures. You see them on MLS showing that the bank foreclosed on the property. The thing is REO’s (foreclosed properties listed on MLS) are now very competitive.

Why? MLS is easy. You see it online, get title insurance, go and make the offer. While you’re doing that, there are 100 other people doing the same thing. But what you might not know, is prior to that there’s an auction for insiders.

So Aaron taught me about buying upstream , how to buy on the courthouse steps. It is a little hairier, but Contrarians know to go where the masses ain’t.

How to Buy on the Courthouse Steps: Buying RE at Auction

A Day at the Auction:

It goes down a little like this….

You show up on the courthouse steps. A small grouping of others are mingling around. They don’t talk much. Secrets aren’t for sharing. Questions aren’t for answering. No Texas hospitality here. Everyone else is a regular, but you, you’re the newbie in town. They open the bid with an auctioneer that moves quickly, he ain’t paid by the hour. So you gotta be ready. Checks exchange hands million are sold and it all happens with the few who know.

The first time Aaron did it, the auctioneer rolled up on a skateboard. Four wheels in hand the selling began. Aaron and a bud took their entire savings to bid on a house, the auctioneer warbled off properties too fast to catch. The selling of millions of dollars was done in 30 minutes, theirs among them. After the excitement faded, they tentatively handed a six-figure check to said rather sketchy-looking skateboarding fellow and hoped they’d eventually get a deed in the mail. A few bitten fingernails later, the deed arrives. They record the title, verify no extra liens on the property and turn around to sell the house for $60,000 more than they had bought it. Life savings returned and ROI’d faster than they’d ever done before.

Now take that $60,000 and magnify it across 100’s of houses. That’s the power of auctions we’re going to steal from him.

Here’s the Playbook

If you want the full playbook, plus a live interview and Q&A w/ Aaron and I, notes from the auction Aaron and I did together (yes I practice what I preach) and more… click here to subscribe to Contrarian Cashflow.

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Step #1 Find the Auctions

  1. Search pre-foreclosures on Zillow.

  2. Look for Government Seized Properties: Here or here.

  3. Google your desired areas for auction dates, lists and times. Search County Trustee Sales on Google to find the notices.

  4. Try Auction.com and search for your city.  Live Auctions are the courthouse step ones, they only have about 20% of them, but will give you a great idea of auction locations, times, and types of houses.  They also list regular foreclosures, that are now bank owned properties that no one bid on at the live auction.

  5. Search bank websites. Banks often list their foreclosed properties for sale online. At Bank of America etc. They list these if no one buys at the live auction.

Now you know where to go, what’s next?

Step #2 Get Your Foreclosure List

You mosey over to get your list of properties from a local foreclosure list service (aka google it) or at Roddy’s if you’re in Texas.

Step #3 Commit Drive By’s

Hold, please. It means go and drive by the house you want to purchase. Easy buddy. Here you determine how much you’re willing to spend. You HAVE to go to the property physically. Even if it’s just from the driveway, you learn a lot as usually the outside of a house mimics the inside. Very seldom is a lawn beautiful and inside its a crack den.

Knock on the door. Talk to neighbors. Find yourself a Nance. Nance’s know all sorts of stuff. Or you can be this guy:

I went to an El Paso auction, and everyone there bidding had Google Maps up on their laptops. They hadn’t seen any of the properties. They were just looking at Google Maps for the quality … “Oh, the opening bid’s $100,000. Oh, this house looks good.” What they weren’t thinking about is that houses get leveled, knocked down, trashed. Turns out one gent bought a house… that had burned down earlier that year. A whopping deal, for a pile of dust. Yikes.

Aaron’s hacks:

  • Hire off duty or retired cops to do the drive-by’s in the area for you. Everyone will talk to a cop.

  • Hire your realtor to do it and send the video. They’re incentivized.

Step #4 What’s the Bad Boy Worth?

  • Look at comps with your realtor.

  • Google search what’s for sale nearby, call the realtor, and say, “Hey, I’m thinking of selling my house, which is this address. What do you think it’s worth roughly? It’s 1,500 square feet. I don’t want an official BPO (broker price opinion). What’s it worth?” And they’ll tell you over the phone, “Well, I think that house is worth this.” Or sometimes, they’ll go, “Oh, that’s Johnny. He’s in a lot of trouble. You guys buying that from foreclosure?” Or sometimes they’ll say, “You’re the eighth guy that’s called me.” Eek.

  • Now you’ve seen the neighborhood, you’ve seen the house: what can this house sell for? How much construction money is it going to cost me to get it ready? And, how much profit do I want? All straightforward questions for answering.

Step #5 Research Liens & Titles

There are really only two things that matter here. Do you own the house outright with no other loans, and are there any property taxes?

Number #1: Check property taxes. Straightforward. Do they owe money on their property taxes or not? It’s very common for a pre-foreclosure, foreclosure, to also have a year of back property taxes. It takes you 30 seconds to check. Go to your county website and search. Then you just deduct that number from what you’re willing to pay.

Number #2: Most importantly…. are you in the first lien position? There could be other liens (debt or loans) on the property. Aka you owe other people $$ if you buy, or do they own the house and not you.

How do you know if there’s a lien on a property?

  • Go to the county recorder, clerk, or assessor’s office online. All you need is the name of the property owner or its address.

  • Visit the county recorder, clerk, or assessor’s office in person. Generally, you will find the people in these offices will be quite helpful, and they can even give you pointers if you need help. (Be charming, this job isn’t riveting, coffee even might help :)).

  • Contact a title company. Title representatives can be extremely helpful in many ways—finding liens is one of them. I strongly advise having a good title rep as part of your investing team.

A SIDENOTE: This might seem like work… well, if things are hard and you stop because they’re hard, will you ever achieve any level of success in anything? 

If you want to pay full price… MLS is there for ya.

Step #6 Get Your Paddle Ready

Bidding at auction. If you’re in Texas you show up at auction on super Tuesday with cashier’s checks on hand. In most states, you have to pay 100% of the funds in cashier’s checks that day. If it’s a $300,000 house, you need to give them at least $300,000 in cashier’s checks that day that you’re going to sign over. You use it as a wallet. Don’t panic, you don’t have to keep it in cash, you can use delayed financing to get a mortgage afterward if you aren’t going to turn around and sell it.

  • Don’t just bring a $300,000 cashier’s check, because what if you get the house for $250,000 and you’re waiting for that balance?

  • Bring some $100,000 checks, some $50,000 checks, some $20,000 checks.

  • “We’ve got a lot of members at Roddy’s, when they first sign up they’re like, “Wait. That means there’s like $50 million in checks at that auction.” Yes, that’s exactly right. It’s a baffling, strangely archaic method, but it is still handing somebody checks.” - Aaron

Step #7 How to Succeed on Auction Day:

  • Know your goal

  • Know your bid in advance (don’t deviate in the excitement of the moment).

  • Arrive early and prepared

  • Listen carefully

  • Don’t bid on unknown or discarded properties

  • Bring a voice of reason (aka another human)

  • Accept going home empty-handed

  • Take a calculated risk

“Risks create rewards.” Your goal is to price risks into the valuation of the property so that you can come up with an amount you’re willing to pay that allows you to earn a profit.

Resources from the Auction Steps - Bid Sheet:

Use a simple breakdown like this to figure out what to buy and for how much. It’ll keep you honest when your paddle finger is twitchy. Spoiler alert - no paddles at these bad boys. Wah wah.


Important Reminder: Measure Your Risks

Never fall in love with something that doesn’t love you back. Don’t fall in love with a house, a deal, anything. There’s always another deal, there’s always another house. Just keep fishing. - Aaron

5 Risks of Buying at Foreclosure Auction

It’s hairy. Just like bankruptcy proceedings. So you decide, can you make the rewards and the work worth the risk?

  1. List Accuracy - Step one is finding your list and filtering it.

  2. Property Condition - If you can’t go inside the house, there’s a measure of error, what’s really under the hood?

  3. Occupancy - Always good to look at eviction rules in your state, and try to speak with the tenants if you can. Just remember risk is inherent but that’s where the returns are.

  4. Clear Title - Insuring no one else ones this home with a loan before yours.

  5. Valuation - Did you buy at the right price? Money’s made at the purchase in RE.


The winning formula in life is usually… take action. We all have fear, but the people who get to the other side, to the financial freedom, take action in spite of the fear. 


If all of this was interesting you should take two steps:

  1. Buy Aaron’s book - Bidding to Buy - Short read, full of knowledge.

  2. Come Listen to Him Live (his presentation is ridiculous) and Get the FULL Playbook at Contrarian Cashflow. You’ll be able to find all of his resources, interviews, models, tools, and tricks in the Contrarian Vault on this episode. AND he’ll do an AMA with me on the subject. EXAMPLE BELOW:

    Includes If You Want to Get Professional: Cost Per Lead Type table, How to Assemble Your Team, How to Determine Resale Price, and SO much more!

CLICK HERE TO SUBSCRIBE

Question everything and buy smarter,

Codie & the Contrarian Team


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