5 Steps to Buying Property at Auction

October 29, 2013

Money

Whether you are an experienced landlord looking to build your portfolio, or an aspiring landlord looking to get your first property, there has never been a better time to buy an investment property. With the number of people in the UK who are renting private properties at the highest it has been for a decade and finance interest rates still fairly low (compared to what they were also a decade ago), buying at auction means that – providing you do your homework – you can snap up a real bargain.

So, what do you need to do to ensure that you get not only a great deal, but a property that has real investment potential? Read on for five things that will help it all go smoothly.

Step 1 – Choose a Location

First of all, decide where you want your investment property to be (so, within easy reach of your current portfolio or your home, depending on whether you have a letting agency etc) and your target tenant type. If you are looking to target students, for example, then you’ll need to look at properties in areas near universities or colleges.

Alternatively, if you are looking for a home that is suitable for a professional family or couple, then you’ll need to consider how close the proposed property will be to the nearest railway stations, motorways, shops, schools, and supermarkets etc.

Once you have a firm location in mind, look out for when your next auction will be in the next few months or so. Local estate agents will be able to offer this information, or you can look online.

The next thing you need to do is to get a catalogue which will detail the properties available – then you can search for those that best meet your requirements and your budget.

Step 2 – Arrange a Viewing

Once you’ve found the property that fits the bill (on paper at least), the next thing you need to do is to arrange a viewing. Do this as soon as you can, so that if it looks like an option, you will have plenty of time pre-auction to get finance arranged and searches carried out etc.

It is important to note that while buying at auction is an exciting and very quick process, it is important you don’t get swept away with it all. You still need to carry out due diligence – for example, view the property and look out for anything that isn’t quite right, whether it is damp, signs of previous subsidence, real signs of wear and tear etc.

If you like the property, then carry out a second viewing. If you are planning to renovate it, think about any additional costs you’ll need to find.

If, after all this, the property still looks viable, then check out local house prices to make sure that you will actually be getting a good deal. Websites such as www.zoopla.co.uk and the Government’s Land Registry will give you valuable information.

Then on to step three…

Step 3 – Instruct a Surveyor

Instruct a surveyor to carry out a survey on the property – yes, this will cost you money if you do not end up actually buying it, but better that than buy a “dud”. There may be things that are not obvious to you but which a surveyor will pick up on.

If this is all good, get a solicitor to carry out searches – these will include local authority searches (which look for things such as whether the property is accessed by an adopted highway, has financial charges registered against it, is a listed building, etc), as well as environmental and planning searches (so that big field which provides a gorgeous view for your proposed tenants could actually be a planned development area in the next 18 months or so).

Step 4 – Arranging Finance

So, we are on to step 4 – so far, so good. You’ve found the property you like, both the survey and any searches have not thrown up anything to worry about … so, what next?

The next step is financing your proposed buy.

This is really important as, unlike buying properties using the more traditional methods (such as via a mortgage), when buying at auction you need to have the finance in place. If you bid on a property and are successful, typically you’ll need to pay a 10% deposit on the day.

Then, within 28 days, you will need to pay the remaining 90%. If you cannot, then you will not only lose your proposed property, but your deposit as well.

Unless you are a cash buyer, it is really important that you don’t make the mistake of thinking you can raise the finance within the 28 days – having the monies in place before you go to auction is essential.

There are a number of financing options – one is getting a mortgage through a lender. The issue you may have here though, is how much the property will actually sell for, which may make the process a bit more complicated.

Using the services of a property development finance provider who understands how the auction process may affect the amount you wish to borrow, and who can be flexible as well as work quickly, may make sense.

Now, on to the final step.

Step 5 – Auction Day

Before auction day, if you get the chance to attend another auction as a dummy run, do so – this will give you more confidence on the actual day.

On the day itself, make sure you have both the deposit and finance in place. When your “lot” comes up, keep calm and, no matter how tempting it is, stick to your budget. It is easy to get caught up in the bidding process and bid more than you can actually afford.

If you do make a successful bid on your property, then – congratulations – and don’t forget to arrange buildings insurance straight away.

5 Steps to Buying Property at Auction

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Auction