Essential Landlord Tips for Buying Investment Property at Auction

There are often many bargains to be had at property auctions, especially for the buy-to-let investor. But there are many things to consider, and indeed beware of too. If you are considering purchasing your next investment property at auction, we have some tips for you to help you avoid the risks, and make the most of the opportunity ahead.

Property auctions can be an exciting experience, but it is important to bear in mind that once your bid has been accepted, there is no going back. Unlike a standard property purchase, when you buy at auction, the deal is sealed the minute the gavel goes down, and there is no going back.

Buy-to-let investors tend to like property auctions because there are often lots to be had that are below market value. Properties that end up at auction are usually there because they have been repossessed, or because the owner is desperate to sell quickly. Mostly, auction properties need a lot of work, but that’s not always the case. The key is to do your homework, and the maths, and make sure that come what may, you are set to enjoy a decent return.

How is a buying at auction different from a standard property purchase?

When you purchase a property through normal channels, once you’ve made your offer there are various legal processes to go through until contracts can be signed and exchanged. At any point during this process, you can back out, although you will lose your deposit, and you would potentially risk being sued for damages by the seller.

When you buy at property auctions, the whole process is accelerated, and there is far less scope to pull out if you change your mind. For this reason, it is absolutely crucial that you have done your research, got your funding in place, read the legal pack and, if necessary, taken professional advice before you even set foot in the auction room.

How to prepare before property auctions?

Research, research and more research is the name of the game. You’ll first need to decide upon the area in which you wish to invest. Then you can contact the local auction houses for advice on any upcoming auctions. They will add you to their mailing list so you receive all the relevant catalogues.

View the property

Once you’ve identified the properties you are interested in, arrange viewings. This is a crucial step. Take time to thoroughly inspect the properties and surrounding area. For properties that are going to need renovating, be sure to take someone with you who will be able to advise what sort of investment you’ll need to bring the property up to standard.

Research the area

Be sure to research the area and speak to local estate agents too so you can verify the type of properties that are in demand, the sort of prices they are going for, and whether there are any ceiling prices.

Request the property particulars and scrutinise the legal pack

When you have one or more properties in mind that you are serious about bidding on, request the auction particulars from the auctioneer. Sometimes these will include vital legal information, other times you’ll need to ask for a separate legal pack. Do not overlook this, because it is the legal particulars that you’ll need to scrutinise.

If searches haven’t been included in the legal pack, ask a solicitor to conduct them for you, and get them to look over the pack too in case there is anything sinister that could jeopardise your investment. You are looking for the likes of restrictive covenants, flying freeholds or loopholes that could end up costing you more than you envisaged.

Set a budget and arrange finance

You should by now be clear on how much your property investment is going to cost you, so set yourself a budget to bid up to, and stick to it. If you are planning on renting out the property, be sure to calculate your likely rental yield.

Unless you’re a cash buyer, you’ll also need to have finance in place before the auction, as you will usually have to hand over 10 per cent of the purchase price as soon as the auction concludes, with the balance due anything from two to six weeks later.

Make sure you know how and when you’ll need to make payments, and go over all the small print with a fine tooth comb. Sometimes for example, terms and conditions dictate that the buyer has to pay the seller’s fees, which if not factored in, could seriously affect your figures.

What happens on the day of the property auction?

It is essential that you arrive at the auction house in good time, as sometimes changes to certain particulars may be announced before the auction commences. Be aware of any alterations, as they could have a bearing on your investment plans.

You will have seen the guide price for the property in which you are interested, but there will also be a reserve price, which will not have been disclosed. This is the lowest price at which the seller will let the property be sold. If the bids do not reach the reserve, the property will not be sold.

If you are bidding, make certain that your bids are clear. Do your best to stay calm, and always keep that maximum budget in mind.

Do be aware that if the gavel falls on your bid, you will be instantly bound by the terms and conditions of the sale, and also liable for the property’s insurance from that moment.

Once the bidding is over, you will need to produce two forms of ID, as well as the deposit.

If the property you were bidding on did not meet its reserve price, you may still be able to purchase it after the auction. Some sellers give auctioneers authority to sell the property privately, so be sure to register your interest with the auctioneer before the sale, and don’t disappear too quickly after the auction.

Auctions are worth considering if you have investment cash at hand, or access to mortgage funding. There are certainly bargains to be had, providing you stick to your budget. But, buyer beware… always do your due diligence, otherwise you could make a very expensive mistake.

Investing in buy-to-let property? Here’s a way to increase your yield, and reduce your risk.

If you are considering going down the property investment route, why not consider protecting your buy-to-let with a guaranteed rent scheme from homes2let?

We offer a complete property management service, with an added benefit. Unlike a traditional property management service, the homes2let guaranteed rent scheme delivers a greater yield, whilst at the same time reducing your investment risk by ensuring your monthly rental payments are made on time every month, even when the property is untenanted.

Why not talk to homes2let to learn more? Our helpful team has specialist expertise in the London property investment market, and is ready to share a wealth of knowledge to help you get the most out of your rental income. We welcome you to get in touch today.