Buying at auction

molit

I currently have a couple of properties that I rent out, and they seem to do pretty well at the moment - these have been accidental, although one of the factors I did consider when I bought them was rental potential

Over the next couple of years I am toying with the idea of expanding this to create a decent income, and act as a pension.

One option I am seriously considering is buying houses at autcion, doing them up to rent out - I've done a couple of houses now so that doesnt phase me.

I have had a look at the resoources available to me but I was wondering whether people had tricks of the trade they were willing to share? - I am happy to use a lot of shoe leather to get a good deal, and realise that getting that lucky purchase involves a lot of blood sweat tears and research

Ruda

No idea but share the same thoughts!
I liked your signature... Good luck...

Jeffrey_Shaw

First and most important: learn how auctions work. No negotiations, no dilly-dallying, no mind-changing.
Plus always ask your solicitor to look at (and report upon) the auction contract pack about 2wks. beforehand.

molit

thanks for the replies, I certainly plan on going to a few auctions just to watch before I even think about doing this. Two things I am currently looking at are would you recommend using a specialist solicitor, and I would be buyng with a mortgage - is there a better type for this situation - I have read up on the getting the agreemenet to lend and that side of things, but would welcome hearing from people who have actually done this.

eddddy

The actual process of bidding and buying a property in the auction room is very straightforward. The bit that you need to devote effort to is checking the legal pack, the searches, the condition of the property - and taking professional advice, if appropriate - before the auction.

In general, if a property goes to auction, it will have some kind of major problem (perhaps legal, perhaps structural etc). Most auction properties will not be mortgageable.

If a property just needs refurbishment (and is mortgageable), the owner would normally sell it through a conventional estate agent, because they would get a better price.

If you do find a mortgageable auction property, I guess you will need to work very fast. Auction lots are normally advertised 3 weeks in advance of the sale, and completion is 4 weeks after the sale. (Exchange of contracts happens on the sale day.) So you will have just 3 weeks to view the property, get your mortgage application processed and get a mortgage offer.

And if you get out-bid on the day, you lose any mortgage application fee, valuation fee and legal costs.

Gazelleboy_2

eddddy wrote: »

In general, if a property goes to auction, it will have some kind of major problem (perhaps legal, perhaps structural etc). Most auction properties will not be mortgageable.

If a property just needs refurbishment (and is mortgageable), the owner would normally sell it through a conventional estate agent, because they would get a better price.

If you do find a mortgageable auction property, I guess you will need to work very fast. Auction lots are normally advertised 3 weeks in advance of the sale, and completion is 4 weeks after the sale. (Exchange of contracts happens on the sale day.) So you will have just 3 weeks to view the property, get your mortgage application processed and get a mortgage offer.

And if you get out-bid on the day, you lose any mortgage application fee, valuation fee and legal costs.

Absolutely untrue that in general, an auction property "will have some kind of problem." I look at auction lists on a regular basis, and the vast majority are repossessions and ordinary fixer-uppers - by which is meant properties in need of updating. There are quite a few regulated tenancies amongst them, true enough, but they're certainly not in the majority. What you will hardly ever see, true enough, is a property that needs nothing whatsoever done to it. I've rarely come across one in London.

The point about mortgaging is quite pertinent, and it's the biggest sticking point for people buying at auction - you will have to carry out all the searches and surveys without any guarantee that yours will be the winning bid. So you have to be prepared to lose hundreds of pounds from the outset.

In all other regards, I've found it a far more straightforward way to buy, than through an estate agent. The biggest advantage is that you know instantly whether or not you've succeeded in your purchase, and you're not dicked around and toyed with by vendors and estate agents alike. But it's scary. My advice would be to go to a few auctions to get a feel of the process. I still find the whole bidding process intimidating, given how high the numbers you're throwing around are.

molit

ok, so I'm guessing getting a decent mortgage broker who is experienced with this kind of thing is quite handy, or focussing on deals with low up front costs is the way to go....

as well as finding a friendly surveyer as well.

I guess you are still likely/possibly can loose those fees up to the point of exchange in the traditional means, so the risk, although higher, is not as bigger difference as one might think at first.

The other query I had is, assuming it is a fixer upper - nothing big, just decoration, new kitchen bathroom etc required, would you recommend re mortgagating as soon as possible to release additional capatal. I guess some of it comes down to the figures involved, but I was just wondering what other people did in respect of this?

Gazelleboy_2

Also, the money you're potentially saving at auction makes the risk worthwhile, imo. Even if you were to miss out on the first 2 properties you bid for, it's a relative drop in the ocean.

The mortgage provider will appoint their own surveyor, so you'll have no say in all that I'm afraid.

Remortgaging once you're already in is a great way to go, if you can manage it. There are also refurbishment/renovation mortgages around, where you'll complete the work in phases, and they'll release capital after a series of inspections. These are usually dependent on a strict time limit - you'd have to finish the work in something like 2-3 months.

molit

sorry, just one final question - I appreciate I want to read up/visit places a lot more before I do any buying. What kind of LTV are you looking at to get such mortgages? I am guessing the same as all others - of the order of 80-85%

Thrugelmir

molit wrote: »

would you recommend re mortgagating as soon as possible to release additional capatal. I guess some of it comes down to the figures involved, but I was just wondering what other people did in respect of this?

If you intend scaling up your empire then you need to work on the finance aspect first. The boom years of property are over. Easy credit has gone forever.

So you need to prepare yourself a business plan. As relying on capital growth alone is a non starter. The properties themselves will need to make profits. Without a profit here's no cash generation.

Without cash there's no capital to invest. Money makes money. Not leveraging up on debt.

Gazelleboy_2

molit wrote: »

sorry, just one final question - I appreciate I want to read up/visit places a lot more before I do any buying. What kind of LTV are you looking at to get such mortgages? I am guessing the same as all others - of the order of 80-85%

The ones I've looked at are more in the region of 70%-80%. I can't post the link, but Buildstore Financial Services is one provider I've heard about.

I should add that I've never gone in for these mortgages, as my renovations usually go on for longer than 6 months. 3 months would make me nervous, given the lead times for certain contractors.