Auction properties with sitting tenants - pitfalls?

chaotic_j

Hi,

I've seen a couple of properties in the local area (Northern ex. mill town) going to some kind of 24 hour online auction - being sold with sitting tenants. These are typical 2 up 2 down mid terraces.

After some research it seems there are pitfalls to be aware of, such as whether the current landlord has followed the correct procedures when establishing the tenancy and managing receipt of the rent.

The properties are currently let on AST with viewings not allowed due to Covid. There are a number of documents available including a redacted copy of the AST.

The properties look to be in fairly good order. I believe after further research you also have to be careful when taking over a tenanted property to serve the correct paperwork in order to establish yourself as the new landlord and take over receipt of the rent payments.

Just wondering what else in particular I should be careful of? Potentially I could get a decent property at a competitive price with instant cash flow? I suppose I would need to pay some auction fees.

Also how complicated is conveyancing of a tenanted property?

Thank you in advance!

canaldumidi

There are huge potential pitfalls as you have limited knowledge of the tenancy, and limited knowledge of the tenants.

Assuming (just to be positive) it IS an AST, it would take 6, maybe 12 months to evict the tenents (asuming you do everything right) if, for example they have not been paying rent, or, indeed, decide to stop paying after you buy.

How will that affect your business plan?

My impression from your post is that you are new to being a landlord - do you fully understand all your responsibilities? And the consequences of doing something wrong? Or the consequences of your predecesssor having done something wrong, since you will inherit the tenancy however messed-up it is!

And buying a property without viewings? So aside from all the tenency risks, you are buying a property blind!

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

Final question - are you buying for cash?

SDLT_Geek

chaotic_j said:

Hi,

I've seen a couple of properties in the local area (Northern ex. mill town) going to some kind of 24 hour online auction - being sold with sitting tenants. These are typical 2 up 2 down mid terraces.

After some research it seems there are pitfalls to be aware of, such as whether the current landlord has followed the correct procedures when establishing the tenancy and managing receipt of the rent.

The properties are currently let on AST with viewings not allowed due to Covid. There are a number of documents available including a redacted copy of the AST.

The properties look to be in fairly good order. I believe after further research you also have to be careful when taking over a tenanted property to serve the correct paperwork in order to establish yourself as the new landlord and take over receipt of the rent payments.

Just wondering what else in particular I should be careful of? Potentially I could get a decent property at a competitive price with instant cash flow? I suppose I would need to pay some auction fees.

Also how complicated is conveyancing of a tenanted property?

Thank you in advance!

I wonder what kind of auction?  Not one using the modern method of auction?  There the lucky “winner” is effectively paying for a reservation agreement.

chaotic_j

Hi @canaldumidi there is a legal pack which includes the tenancy agreement. It's for a term of 35 months and was taken out in May this year with a rent review last month which increased the rent by £10 p/m.

It says on the auction that 'rent receipts have been requested'. So I guess if the tenant has not been paying the rent or stops paying after I acquired the property it could be costly to evict them?

Yes being honest I am a total newbie and trying to do some research before committing to anything. I put an offer in against a vacant property on the same road which I was not successful with. So even if the property at auction ends up being in a state if it's cheap enough it would be worth refurbishing.

I would be buying with cash.

@SLDT_Geek You have to reserve £5K on your card before you can bid, if you're successful it is taken off what you owe. It looks like with a buyers premium, plus the vendors legal fees and auction fees this would be whatever the property goes for plus £5K.

It seems to be the kind of auction that runs for about a day, if you bid in the last 30 seconds it increases the auction by 30 seconds apparently.

Thanks for your help, I willl make sure to check the links.

Pixie5740

chaotic_j said:

Hi @canaldumidi there is a legal pack which includes the tenancy agreement. It's for a term of 35 months and was taken out in May this year with a rent review last month which increased the rent by £10 p/m.

It says on the auction that 'rent receipts have been requested'. So I guess if the tenant has not been paying the rent or stops paying after I acquired the property it could be costly to evict them?

Yes being honest I am a total newbie and trying to do some research before committing to anything. I put an offer in against a vacant property on the same road which I was not successful with. So even if the property at auction ends up being in a state if it's cheap enough it would be worth refurbishing.

I would be buying with cash.

@SLDT_Geek You have to reserve £5K on your card before you can bid, if you're successful it is taken off what you owe. It looks like with a buyers premium, plus the vendors legal fees and auction fees this would be whatever the property goes for plus £5K.

It seems to be the kind of auction that runs for about a day, if you bid in the last 30 seconds it increases the auction by 30 seconds apparently.

Thanks for your help, I willl make sure to check the links.

The AST and rent receipts are not enough. Were the tenants given the right to rent booklet, gas safety certificate, etc at the start of the tenancy? Was the deposit protected? The previous landlord failing to do these things can make any Section 21 you issue in the future invalid. 

What is your intension? To build a property portfolio or to find somewhere to live? 

tealady

Do you get your reservation fee back if you lose.
Check, double check and check again. Then get it in writing.
If you are told you dont get your fee back if you lose then my advice consists of 3 words. 
Ten foot bargepole.

Doozergirl

This has so many red flags on it. 

Buying a property
-unseen
-via Modern Method of Auction 
-that is tenanted 

This is not the way to start buying property. Each of these carries its own risks, combining several risky elements only
increases the chances of something going wrong. 

canaldumidi

Pixie5740 said:

chaotic_j said:

Hi @canaldumidi there is a legal pack which includes the tenancy agreement. It's for a term of 35 months and was taken out in May this year with a rent review last month which increased the rent by £10 p/m.

It says on the auction that 'rent receipts have been requested'. So I guess if the tenant has not been paying the rent or stops paying after I acquired the property it could be costly to evict them?

Yes being honest I am a total newbie and trying to do some research before committing to anything. I put an offer in against a vacant property on the same road which I was not successful with. So even if the property at auction ends up being in a state if it's cheap enough it would be worth refurbishing.

I would be buying with cash.

@SLDT_Geek You have to reserve £5K on your card before you can bid, if you're successful it is taken off what you owe. It looks like with a buyers premium, plus the vendors legal fees and auction fees this would be whatever the property goes for plus £5K.

It seems to be the kind of auction that runs for about a day, if you bid in the last 30 seconds it increases the auction by 30 seconds apparently.

Thanks for your help, I willl make sure to check the links.

The AST and rent receipts are not enough. Were the tenants given the right to rent booklet, gas safety certificate, etc at the start of the tenancy? Was the deposit protected? The previous landlord failing to do these things can make any Section 21 you issue in the future invalid. 

Indeed. See my post in this thread here too

https://forums.moneysavingexpert.com/discussion/6319514/apartment-with-sitting-tenant#latest

chaotic_j

Thanks all for the advice so far..

@Pixie5740 I have no idea what the answer to those questions is and completely take your point. The auction house has a couple of other nearby properties and interestingly all ASTs are extremely similar. I believe the same vendor is disposing of multiple properties for some reason.

My intention is to build a property portfolio starting off with one property as a cash purchase and seeing how it goes.. I already have a property I currently live in which is owned outright.

@tealady Yes if you don't win, the £5,000 hold on card is refunded - it's in the T&C's etc. I entered my debit card details but as my current account doesn't hold £5,000 at the moment (it's in an instant access savings account) the deposit hasn't yet been held.

@Doozergirl One of the properties has been updated with a few pictures - it looks reasonably OK. The one I'm most interested in has no pictures but looks tidy from the outside. I asked the auctioneers if it's Modern Method of Auction and they said 'it's an online auction'. Have they avoided the question?

chaotic_j

So it's not long until this 24 hour online auction starts and I just checked.. the cheaper property has had the starting bid increased by... 45%! but when you click on it still shows the previous 'guide price'? Hmm..

eddddy

chaotic_j said:

I asked the auctioneers if it's Modern Method of Auction and they said 'it's an online auction'. Have they avoided the question?

Rather than getting hung-up on the name given to the auction  - it's more a case of fully understanding all the terms of the auction, and all the fees you might have to pay in various circumstances.

"The modern method of auction" is a name typically used to describe a conditional auction with a large non-refundable reservation fee (sometimes with the risk that the seller isn't obliged to sell to you - even if you've paid the non-refundable reservation fee).


So for example, you need to find out things like

• if it's an unconditional auction or a conditional auction
• if there are any kind of non-refundable fee
• is the seller obliged to sell to you 
• etc etc etc

So you need to read the auction t&cs, the special conditions and the legal pack really carefully. There are so many flavours of potential pitfall that it's impossible for anyone here to warn you about them all.


Based on what you've said in this thread, I'd say your plan is fairly high risk - and only really suitable for somebody with good knowledge and experience. But it's your call.