My wife and I were driving through the neighborhood and spotted a house that is going up for auction in a couple weeks. Thinking about picking it up as a possible rental property. Wanted to know if anyone has been through the process of buying one of these houses and what to look out for.

If you have patience the short sales and especially the REO's can provide a better value IMO but it cant hurt to go check it out to get a feel for the process. Usually need to have cash in hand and you will be competing against some pretty experienced veterans but ya never know...good luck.

Mike

+1 with has been posted.
REOs of partially completed houses are going cheap right now as long as you have the knowledge, money source and patience these can be a real good way to go. A lot of the building permits have expired so this may take some time. Plan accordingly.
Check with the auction company to see if they have a title commitment you can read or have a copy of to see what is recorded against the property.
If the house is being foreclosed on, then you must show up with the funds at the trustee's sale, which is typically at the county courthouse but not necessarily. One easy payment.
If the house is being sold by an auction company and is not a foreclosure, you may be able to close on the purchase, post auction, but I'd get the funds lined up before hand as sometimes the closing is short on thses types of auctions so you don't have time to shop for financing.
If it's a foreclosure auction, the trustee will tell you what the opening bid is. If it's a private auction, there probably is a minimum bid amount the seller will accept. Either way, call the people having the sale and they'll tell you.

Great time to build your own home too if you can get the financing. or have cash. Lots of builders have gone belly up and the banks are holding either the half finished homes or lots. If you check, on some of these lots the water, sewer and impact fees have been paid. The realtors are not always checking this out. This could save you thousands. Here in Pierce County I have seen some building lots in subdivisions going for as little as $45,000 with all the fees paid. Last I looked there were some for $45,000 or less but not sure on what has been paid. Compared to a vacant spot lot, this is a steal. You can figure about that a lot in a subdivision with a permit and water paid has a minimum of $15,000 invested in it over a lot outside a subdivision with no improvements.(Water, curbs and gutter, approaches, clearing, impact fees, permits, engineering, Sewer stubs, surveying, sidewalks and more). Easily could buy one and take the contractor approach and have a nice starter home for around $125,000 or so. Could have as much as a true 40% equity in it.