Without knowing the after repair value and price range of the home, it would be hard to determine how much below comps you should bid. You want to give yourself a discount for having to deal with buying a home that needs extensive repairs.
Best of luck!
To answer this question, you first have to answer one of three other questions concerning your exit strategy with the property.
1. Are you interested in keeping the property as your primary residence?
2. Would you prefer to hold and rent the property for income?
3. Do you plan to rehab and sell the property for a capital gain?
The answer to these questions will determine the approach you take in calculating your maximum bid. Let's assume, for calculation purposes, that there are no hidden expenses such as liens other than the purchase loan on title. I would highly recommend working with a REALTORÂ® in your area. They can help you determine the After Repaired Value of your target property. In addition to that, if you decide to rent it, they will know the market rents that your property can command and help with the structuring of your deal to achieve your desired outcome.
For primary residence: ARV â€“ (repair costs + purchase expenses) = Highest Bid
For a rental property the calculations can become very cumbersome. There are many moving parts that can effect the cash flow of the asset. The goal of holding a property as a rental is cash flow. Talk to your REALTORÂ® and your CPA or Tax Attorney to determine the strategy that best fits your situation. In the formula below the debt service is determined by your auction purchase price and other monthly expenses, so you will have to work backwards. A very simple formula for rental properties is as follows: Market Rent â€“ Monthly Debt Service = Cash Flow
For Rehab and Sell: ARV â€“ (purchase expenses + repair costs + selling expenses + ROI) = Highest Bid
I hope this helps or at least gets you started in the right direction.
First you must determine what the home is worth based on comparables. Then as you have apparently done factor in the repairs, auction costs to determine what it would cost to get the house in the standards for the neighborhood comparables.