Translator: Nyoi-Bo Studio Editor: Nyoi-Bo Studio
Compared to warehouse auctions, the site of the property auction was even more chaotic. It was especially so because the phone ringing would not cease.
The houses were auctioned in chronological order based on their numberings. The first property was an urban house in the Santa Monica city area.
Such urban houses were also called condominiums. It was a house with two or more neighboring dwellings connected by sidewalls. It could also be called a row house. The value of such houses was lower than that of a single bungalow. Its lot was relatively small as well.
The value of American houses was dependent on two factors, namely the land and the building itself. Buildings would become cheaper as they aged, and land would change its worth based on regional development and environmental shifts.
The house was built in the early twentieth century and has been in existence for over a hundred years. Such houses were common in the United States, and after some repairs, people could move into it. It was very common for the house to be older than the resident was.
As the house was very old, its transaction value was relatively low. Like many old houses in the urban area, its lot was quite large, and the house itself spanned 250 square meters.
White Gloves pounded a few times on the table with a hammer and said, “Everyone, silence, please. The auction will officially begin now. Everyone who is interested please move forward and call out your bids as soon as you can. The house will not wait for anyone.”
“I will count to three, and once I do the bid will be taken. The bidding sum must be lower than the amount in your bank or the amount of cash you brought with you. In any case, you guys should be clear about how much money you have. Do not call out a bid you can’t back.”
“Alright, then. The starting bid for this house is 20,000 dollars, that’s right, only 20,000 and you can take down this big house in the city center. Those who are interested please come forward. Very well, 21,000 once…”
Santa Monica was a vacation city. Its location in California was similar to that of Flagstaff city in Arizona. The place was small, but because of the environment and climate, many wealthy people would buy a house there, and real estate was not too cheap.
A house of that size for 20,000 dollars was considered cheap, however one looked at it. Even if the house was a hundred years old, the price was still considered very low.
That was characteristic of foreclosure properties. The prices were low and there was room to make profits. However, no one knew the condition of the house and had no idea if it was fit for people to stay in. Hence, it was a gamble for those who were willing to take risks.
Li Du joined in the bidding. “25,000 dollars!” he called out
The auctioneer pointed at him and said, “This gentleman has bid 25,000 dollars. Is there anyone willing to bid higher? Oh, 26,000 dollars, very well, that gentleman has bid 26,000. Alright, then, let us be more courageous…”
The bidding continued and the bid for that old property had reached around 50,000.
The market price of such an old house could go up to 100,000 US dollars. The bidders were willing to pay that much because of its good location, proximity to transport networks, entertainment outlets, schools, and other conveniences.
Because of all the advantages, although the house itself had a low starting bid because of its age, it would be able to fetch a high rental fee and a good return rate.
According to the information that Li Du had, the return on a gross rent of houses in California could generally go up to seven to nine percent.
Deducting the cost price and management expenditures, the net rate of return was still at 5.6 percent. That was different from China. The rental rate in China’s leasing market may be 23 percent, but the ratio of house price to rent was not regular.
For example, Sophie leased a villa in Los Angeles, which was about three thousand square feet, for around 900 US dollars. Its annual rent was 80,000 dollars, and the rental return rate was close to eight percent.
Just as Li Du had estimated, the bids for the house continued to rise and very soon, it reached 50,000 dollars.
Everyone had the same intention. After buying such an old house, they could just tidy it up a little before renting it out. If the house was not badly damaged, the rate of return could be high, and might even reach 20 percent!
In property auctions, the final transaction price was very predictable. The range that people would bid was determined by the estimated value of the house. Generally, if the value of the house was less than 100,000, the maximum bid would be 50,000. Bidding any higher would be too risky.
If the value of the house was less than 200,000, then the highest bid would be 60 percent of the estimated value. At 500,000, the highest bid would be at 70 percent. When it came to one million, the highest bid would be about 80 percent of the estimated value.
If the value of the house were any higher, there would not be any other applicable guidelines. People would only be able to make a quotation based on their own experience and luck. A house with a value of more than one million dollars could lead to a big loss for the buyer, and those who dared to bid for such a house were generally well-off.
At 50,000 dollars, the enthusiasm of the bidders started to dwindle.
Someone started to analyze, “If it’s 50,000 dollars… the annual rent is about 7,000 to 8,000. The rate of return would be 15 percent. But there would be property tax of 2,000 to be paid, the garden maintenance fee is at least 500, the housing insurance and maintenance costs will add up to another thousand… Okay, let’s risk it, 51,000 dollars!”
“55,000 dollars!” Another house-picker bid.
The auctioneer pointed at him and said, “55,000 dollars, gentlemen! Is there someone willing to bid higher, for example, 56,000 dollars?”
Li Du rubbed his chin. “60,000 dollars!”
Hearing that, some of the house-pickers started to shake their heads.
“D*mn, that amount is a little risky!”
“A lousy house like this is worth at most 50,000 dollars, any higher and he would lose out!”
“Where did that man come from? Since when is there a Chinese among our crowd in Santa Monica?”
“He’s a treasure hunter, he is from Arizona.”
“Ha, he’s quite daring in bidding. So he’s a newbie? Let him take it then.”
The market value of this house was 100,000, and at a listing of 90,000 dollars, the house could be sold off fast. However, the house-pickers were not willing to bid too high because they did not know if the water pipes, electrical circuit and wall paneling of the house were in good condition.
Li Du did not have that concern. He had used the little bug to take a look. The house had been quite well maintained and all the pipes and circuits were working. To buy the house at that price would guarantee him steady profits.
The auctioneer pointed at him and began to confirm the bid, “60,000 dollars once, is there a higher bid? 60,000 dollars twice, if there’s no one else – buddy, you won the bid at 60,000 dollars!”
Li Du grinned and nodded. He raised the number tag he was holding onto and showed it to the auction official. The rest of the procedure would be to transfer the property and there would be an intermediary to assist him.
The second house was now put up for auction. It was a bungalow in the urban area. The house was very new. It was only ten years old and belonged to the category of newly built houses. The price of such a house was relatively high. The market price of a house like that, though it was only 140 square meters, was about 300,000 dollars.
Li Du did not bid for the house. There were squatters who lived in it, and they had children. It would be very difficult to obtain an eviction order and get them out of the house.
Others were also aware of that information. They had inquired about the house in advance. The final price of the transaction was one 120,000 dollars. If the people living inside could be successfully evicted, there was a very high potential profit to be made. However, it would be tough.
Li Du looked at the house-picker who took the house. Li Du estimated that the house would be useless to the man. The man who lived there illegally was a lawyer, and he must have found a way to stay in the house.