Buying flat from auction - a few questions

szyblaszczyk

Hello. We are going to buy a flat from auction, want to renovate it and sell. We have a few questions:

1) How to find the right short-term (a few months) insurance which covers house while renovating it? Can you recommend any insurance company?
2) Can you recommend any legal help (analysing legal packs etc.) so we avoid problems after purchase?
3) We think that briding finance is our only option. Can you recommend the cheapest company? Or maybe other option?
3) What's more we should be aware of? Encourage or discourage us. :-)

We read a few books, listened to many podcasts but now it comes to finally do it! Would be nice to read your advices and points of view.

Thank you.

Cakeguts

szyblaszczyk wrote: »

Hello. We are going to buy a flat from auction, want to renovate it and sell. We have a few questions:

1) How to find the right short-term (a few months) insurance which covers house while renovating it? Can you recommend any insurance company?
2) Can you recommend any legal help (analysing legal packs etc.) so we avoid problems after purchase?
3) We think that briding finance is our only option. Can you recommend the cheapest company? Or maybe other option?
3) What's more we should be aware of? Encourage or discourage us. :-)

We read a few books, listened to many podcasts but now it comes to finally do it! Would be nice to read your advices and points of view.

Thank you.

Often the reasons for flats to be in an auction is because the lease is too short for anyone to get a mortgage on it

Another reasons could be that there is no management company or freeholder to manage the building repairs. Another reason could be that there is a structural problem with the building.

If it is an ex local authority flat and is in a block it might be impossible for anyone to get a mortgage on it which means that even if you buy it for cash you will not be able to sell it to anyone who needs a mortgage.

szyblaszczyk

Cakeguts wrote: »

Often the reasons for flats to be in an auction is because the lease is too short for anyone to get a mortgage on it

Another reasons could be that there is no management company or freeholder to manage the building repairs. Another reason could be that there is a structural problem with the building.

If it is an ex local authority flat and is in a block it might be impossible for anyone to get a mortgage on it which means that even if you buy it for cash you will not be able to sell it to anyone who needs a mortgage.

Good points, thanks! We'll keep it on mind.

Leasehold is for 87 years. Should be enough for most lenders.
It's a flat in a detached house. There are 3 more flats there. One of them is currently occupied. We are going with engineer on Tuesday for a viewing so he will check as much as he can. For now flat is in a rough condition. Many things needs to be renovated, including floor.

Tom99

I would appoint a solicitor to go through the legal pack before you bid.

ognum

At this time be very careful if you are in this for profit. In the area I live prices are currently static even though they have risen fast in the past.

Renovations are costly and you will need to get the permission of the freeholder which can take time. Be sure the price you can eventually sell at covers legal, loan costs, renovations, stamp duty and possible extending the lease.

Buyers are becoming very wary about short leases and with plenty of property sloshing around on the market your length of lease will be a negative unless the flat is sold cheap.

This type of property would have been a landlord purchase but many LLs are getting out, holding back or want a real bargain.

Think very hard and be prepared for the on costs, council tax, service charge,ground rent, water, electric, gas etc if you have along wait for a buyer.

hazyjo

You prob won't be able to sell to someone needing a mortgage for at least 6 months. Maybe 12. Bridging loan for at least 6 months? Pricey! Do your figures still add up when you take interest into account, or if you have a couple of sales fall through? Bridging loans should be for very short term only.

One purchase of mine took 5 months (was initially rushing it through to exchange within 3 weeks!). Two others took around a year from looking to actually moving in.

davidmcn

Do you have experience in renovating properties?
Have you bought flats before?
How well do you understand the market where you're buying?
Do you know why the property is being sold at auction?
Bridging finance for what proportion of the price? How little cash do you have?
If it's a property in a popular area you'll be competing against other, more experienced developers, who probably don't need to pay for finance. So be ready to have many failed bids (and bear the cost of your due diligence on those).

Doozergirl

1. Google. You need specific renovation insurance for unoccupied premises. Nothing else will do. It is far more expensive than home insurance, so don't be surprised.
2. A good, local solicitor to do the legals for you properly before you buy.
3. Bridging finance is expensive and you are going to need this for at least six months. I suggest you speak to a mortgage broker as it doesn't sound like bridging finance is the best option to me.
4. There is going to be something wrong with this flat other than its appearance. Things don't go into auction without good reason and a bit of an update isn't usually one because everyone thinks they're a property developer. It will usually have something to do with the ability to raise a mortgage, hence your solicitor being important here.

Leasehold property in general takes longer to get to being ready to exchange than freehold. I ln an ordinary situation of course, you wouldn't exchange until that work is done. You're going to exchange straight away and then hope the rest falls into place for completion. Needing finance on a leasehold at auction is an ambitious place to start property developing.

tom9980

3 of 4 flats empty that’s a big red flag to me.

martindow

And don't rely on the guide price being what you will have to bid. Auction lots are often listed with low guide prices to attract interest. This plus possible legal, structural or mortgage problems may make it very difficult to make the profit you anticipate.

szyblaszczyk

Hi guys,

Thank you very much for all your answers! I multi-quote everybody in my next post. Just have one additional question as I found something worrying in legal pack even before sending it to solicitor. Am I understand well that below sentences clearly says that this flat can't be sold for 12 months after purchase and if then we have to pay all money we earn to the seller? That's a huge trap if so!

The Buyer shall not dispose of the Lot within
12 months of the Completion Date;
19. If the Buyer does dispose of the Lot within 12
months of the Completion Date in breach of
the above, the Buyer shall:-
19.1. If the price paid for the Lot is
greater than the Price pay to the Seller,
or at the direction of the Seller, to CHL
the difference in value between the
Price paid by the Buyer for this LOT and
the price for which the Lot is sold in
breach of the above; and
19.2. Indemnify the Seller and CHL for
all costs and liabilities arising as a result
of the breach and against all claims by
third parties arising as a consequence of
the breach.


Best regards,
Szymon