Auction Property – is this a good place to start

Hi Jude,

As ever there is no quick, or easy way of making money in property.

Yes you certainly do need to do some research as there would be a lot more information required to give you any specific advice, but this is a good place to start.

Generally I would say Auctions are not for newbies as the funds required as deposit and working capital are higher, the cost of financing is higher and then you are bidding against builders with cash and much lower costs. I have spoken to a huge number of people in your position and because of this very very few actually end up making a purchase.

First you will need to be prepared to provide as much as 40% deposit normally on a commercial bridge for this type of renovate and flip deal.

The lender will want to know your previous experience, the purchase price, the cost of refurbishment, the Gross Final Value when finished (GDV) and lastly your exit strategy to repay the loan.

A Bridge will normally have highish arrangement costs and the interest is expressed per month somewhere in your situation between maybe 1.75 and 2% plus.

Then you need to do all the work and carry the costs of organising the loan offer on that specific property before you go to auction because you cannot risk raising your hand without knowing you have the funds and then you don't know if your bid will be successful. To add to this timescales are normally very tight before the auction date so start as soon as possible.

That is why many purchases at auction are made for cash, which can always be refinanced later.

If you do decide to proceed at auction we have some excellent commercial finance brokers who do these sort of deals all the time and can give solid advice. Just email me on info@property118.cm

I have had some excellent cash buys at auction but have very recently had less positive experiences as follows: -

Property 1 - with a good deposit I accessed mortgage funds before the auction of £100k above the guide price and paid for a mortgage application and associated valuation so that I had the funds ready to pay after the auction. The auction ran and ran and ended up £50k over my budget hence around £1000 fees wasted.

Property 2 - I again had a very good deposit and went down the line again of applying for a mortgage getting agreement in principle and pre application survey for the lender to consider the property. All went okay, property approved in principle valued up okay and bought on the day, but then two weeks before completion date the lender decided the property was not after all suitable for them. Again huge fees lost - probably approaching £2k this time and now facing high bridging loan fees and re-applying to other mortgage companies incurring new application fees, new valuation fees etc.

Auctions are good when it works out okay but you have to be prepared to take some risk and to take the rough with the smooth.

I would just say too, living in the North of England, that some properties that appear at first sight to be cheap may be cheap for a reason and may end up not being as much of a bargain as they first appear.

Some 'cheap' areas are so saturated with BTL properties that properties don't readily let out and are stuck unlet for ages and then there are the resulting reductions in rent that happen to try to tempt tenants.

Do your due diligence - research areas thoroughly and check on the property websites to see how many houses are available to rent in the area and how long those rental properties have been up for rent.

Good luck in whatever you decide to do!

Hi Jude

As a Newbie invest time in property investment education.

Here's an excellent site to subscribe to for searching auction properties:

https://www.eigroup.co.uk/

Provided the funding is in place there are two particular strategies investors use:

1. Pre auction offers ;

Select the property that fits your criteria, do the due diligence and make sure the numbers stack up. Put an offer in writing to the solicitor of the seller and not the auctioneer. Wait to see what happens. Sometimes if the seller is desperate you might be successful.

2. Unsold lots

As above but find out why the property was not sold.

All the best.....

Reply to the comment left by "Anne Nixon" at "19/11/2014 - 13:48":

Sorry Jude, just noticed that you said a property to sell on not rent out, but my earlier comments stand. A 'cheap' property might be in one of those areas I mentioned where the property market is stagnant and properties are hard to sell or rent out.

Plus then you also have the difficulty of trying to project manage a refurbishment a long way from your base (and don't get me started on the frustration of paying council tax on a property that is on the market waiting to be sold or rented out!!) 🙂 Good luck anyway!

Hi as an estate agent I am currently finding that auction properties are becoming far more expensive ,i suggest scrolling through the property websites as there are bargains to be had ,also a good way is if you see a run down property that has been empty for a while ,get the address and pay £3 for land registry and contact the owner direct see if they are looking to sell its direct but sometimes does work as owners sometimes dont have time to put on the market etc

Homework is vital. Make sure you know your area. Take a builder with you to view the property, your plan won't work if you are hit with unexpected bills. Finally get a solicitor to look over the legal pack before you buy.

Hi Jude,
I've done exactly what you propose and have a property in that area. I can give you some suggestions on how to get started, but it would take a lengthy telephone conversation, which I'm happy to help with.
Let me know if your interested chrispdaniel@virginmedia.com
Chris

If you are a newbie, I would not buy at auction unless you have 100% funds available and can buy for cash or have secured a solid offer of finance for the specific property at up to a certain price. Even then, as noted above, offers of finance might be withdrawn and/or some title or physical problem might make the property unmortgageable until the issue is sorted out, e.g. absence of planning permission or building regulations consent or a structural problem that is picked up when a survey is done.

By definition newbies are unlikely to have the experience to spot all the problem areas. A major warning sign when you are buying at auction is that you are buying at auction! That is where the problem properties go.

If you are going to bid at auction, I would recommend going to a number of auctions and not bidding, then try a "virtual purchase" were you research a property thoroughly by reading the sales pack carefully, visit the property (with a good builder who can give you reasonable comfort there won't be structural problems) and then decide how much you think it is worth. Again, don't buy but see what others are prepared to pay. Opportunities are like buses - if you miss one another will be along shortly, if you chase after one carelessly you may fall and get hurt! You can also get used to the atmosphere of the auction room so you won't get carried away when you come to bid for real.