If you like auctions, bidding on seized properties might just be the cherry on top of your investment sundae. Whether you get a good price for the property depends on the other bidders in the mix.

Auctions in general can be really weird. For instance, I attended an estate auction once where the auctioneer presented a taped box of unknown items. He said it had not been opened and he was auctioning it as a sort of grab bag. Well, two guys at the auction went into a bidding frenzy. Ultimately, one of them won the bid for $250. Know what was in it? Old fruit jars. Not antique fruit jars, mind you, just plain fruit jars with a value of maybe $5. Another example happened on eBay. I usually buy my tax software on eBay and save myself some money, but last year the bidding on one seller’s software was $20 more (not including the shipping costs) than I could buy it at Office Depot. Go figure!

Now I know you would never ever do such a stupid thing as overbidding at an auction, but it happens. That means you need to know the maximum you’re going to spend before you start the bidding process.

You’re going to want to follow the same process when bidding on a property as you would if you were buying outright from a seller. First, determine the value of the property based on other properties in the area. That gives you the market value. Next, scrutinize it for any repairs it might need and estimate the cost. Now subtract the cost of repairs from the market value. Then subtract your anticipated profit from that. Eureka! You have just come up with a bid value.

Here’s some numbers to digest:

Market Value of property .. $100,000

Cost of repairs ....... -$ 15,000

Holding Costs ................. -$ 3,000

Profit ...................... $-25,000

Maximum Bid ..................$ 57,000

If you plan to use the property as a rental, you need to factor in the anticipated increase in value of the property. For instance, let’s say your research tells you that properties in the area are increasing at the rate of 10% a year. In three years, the property would be worth roughly $133,000. If the rents will sufficiently offset the mortgage payments and other expenses, you could bid up to the full value of the property less repairs and still make a good return on your money.

Keep in mind, you’re going to need to have your lender in your back pocket when you bid on these auctions. The Feds usually give you only 30 days to close the transaction (that means 30 days to pay in full). If it’s a tax auction, you might need to pay on the spot or within a couple of days.

Before you get all excited about a seized property, get out your pencil and write down exactly what you want to earn on that investment. Then make an organized task list of what you need to know about the property. Once you have gathered the information, you’ll be in a position to know how best to bid in order to meet your investment goals.

For a list of seized properties being auctioned by the Feds, go to http://www.ustreas.gov/auctions/customs/. This government site will give you all the gory details I haven’t included in this hub. Also, check with your county and state for their auctions. We’ll go more into that on the next hub.

Be sure to follow this series if you’re interested in rental investments:

http://hubpages.com/hub/The_Irreverent_Guide_to_Rental_Terminology

http://hubpages.com/hub/The_Irreverent_Guide_to_Rental_Property_Investments_The_types

http://hubpages.com/hub/The_Irreverent_Guide_to_Buying_Rentals_1