Ways of buying a property at auction
Buying property at an auction is an engaging experience, even for the professionals and the experienced ones. But there are a lot of things that you should consider before you enter the auction room.
Buying a property at auction requires planning and research, budget evaluation, and auction finance.
Selecting the right auction
Find an auction that is appropriate for your requirements and make sure to be at the event on the scheduled day. There’s are a number of ways to spot property auctions, which include the property press or your local estate agent, who may be able to advise you in the right direction. Once you have selected which auction to visit, you can get hold of a catalogue and begin on the next step. You should be aware that upcoming auctions are advertised about a month before the auction date, so you should act quickly if you come across one that you would like to go to.
Finding the right property
You may begin by highlighting all the properties in the catalogue that are according to your portfolio plans. You may want a flat to modernise and renovate, or a family home to turn into student living, so look at properties that meet your needs. Whatever you have planned, ensure that the properties you are looking at, meet your requirement, and won’t need more renovation than you can afford.
Go to property viewings
Once you have shortlisted a few properties that you consider worth bidding on, book some viewings. This is one of the most important parts of the process, and it’s necessary to look into things such as the legal pack and the existing planning permission on the property to make sure that it works according to your plans.
One of the most common things you will find with auctions is that the properties are often in derelict or bad shape and not appropriate for a traditional residential mortgage. That may be precisely the reason why there are bargains to be found, but it’s a good idea to check the state of the property. If you have a professional such as a contractor, architect, or surveyor that you know well, you may invite them to the viewing as well.
Assessing what work needs to be done at the property will have a direct impact on your profit margins. So this is an integral part of planning. For example, in case you want a quick makeover of the property but spot cracks in the walls at the time of viewing, you should be alarmed as that could mean severe structural damage, which may be enough to put off an experienced developer.
Approach an auction financier
At this stage, you will have a shortlist of properties that have passed your test at the viewing, and there are no deal-breakers like refused planning permission or any major structural problems. If you require auction finance or any other type of property development finance to pay for your plans, you will need to approach your lender now.
It’s an opportunity to present your case to the lender, so make sure that you have got a clear idea of the estimate of how much the works will cost, and how soon would you want or what your timeframe will be. It’s also a good idea to know the market value of the property, even if the auction reserve price is less so that you know the threshold between bargain and bust.
Get an agreement in principle
With auction finance, once the lender has gone through your application, and agreed to your proposal, you will have a precise figure to work on. In a few cases, it may be very specific, or if you have a strong track record, the lender may give you options or a range of figures. In some cases, it’s possible to get auction finance for a number of properties, which allows you to boost your portfolio.
This way, you’ll have a really clear idea of how much you’re willing to pay for your target property when you walk into the auction house. The lender will have given you a maximum figure they are prepared to lend, and you should also be aware of the market value of the property as well as what your competitors are likely to bid.
This is one of the most critical points. If you have got an agreement in principle from an auction finance provider, you must adhere to your budget. Bidding beyond the agreed sum during the auction hall proceedings may be enough to spoil the deal, and not having a finance in place means you stand to lose the 10 percent deposit if you cannot get the funds together within the stipulated time of 28 days.
If you are not using auction finance to fund the auction, it’s still necessary to be strict with yourself. You should remember that at this point, you will have done your market research and calculations, so you should know what a good price is.
The basic rule of property auctions
Decide on your maximum price for the property — and stick to it.
You will also need to consider what you would do to the property in case your bid is successful and come up with the best and worst-case possibilities for that cost as well. The goal of all property developments is to make your return higher than your outlay.
On the auction day, you have got to be disciplined on yourself. If anyone bids higher than your maximum, the auction is effectively over for you. It is difficult to restrain yourself if someone overbids you by a small amount, but if you are tough on budget, you won’t need to win at the very first auction — because your research earlier during the process means you will have many more opportunities in the future.
Combine finance types for maximum efficiency
Apart from being a flexible product, auction finance can be combined with other types of alternative finance, so your overall property development plan gets covered.
