If you're a UK landlord looking to expand your property portfolio or simply interested in buying a property to let, you may want to consider purchasing at an auction.
Property auctions can offer great deals and opportunities to buy properties that may not be available through traditional channels.
However, it's also important to be aware of the potential pitfalls and risks involved in buying at an auction so that you can weigh up the pros and the cons.
Benefits of Buying at Auction
Get a Bargain
Buying a property at auction can often mean paying a lower than market price than if you had gone through an estate agent. A guide price is set but properties will sell for less or more than this guide depending on the level of competition.
Quick Buying Process
At auction you know on the day if you’ve been successful in securing the property. Whether it’s an online auction where you bid up to a certain time or is held in person, there is a very clear timeframe and buying window. Putting a bid in means you agree to the legal terms and conditions of the auction, and you will pay a 10% deposit immediately after you have won. You then have 28 days to complete the purchase.
Level Playing Field
There are no preferred buyers at an auction. Everyone is on a level playing field and the highest bidder wins the property.
Quick Rental Turnaround
With legal completion having to take place within 28 days of the auction, landlords are quickly able to crack on with any renovation works and make the property ready for rental.
Some auction properties come as ‘tenanted stock’ which enables rental income to be payable to new landlords as soon as completion has happened.
A Property with a Difference
Buying at auction also gives landlords the opportunity to bid on a wide range of properties, including those that may be considered unusual or unconventional. These properties could be anything from renovation projects that require some work to quirky properties that are unlike anything you'd find through traditional purchasing methods. This can be both an exciting and rewarding experience for landlords.
Pitfalls of Buying at Auction
Limited Time for Due Diligence
Timeframes are much tighter when buying a property at auction. A property may be marketed for 4 weeks prior to an auction and in that time the new potential owner should: have a thorough viewing of the property; read through the legal pack; get any legal advice from solicitors; ask building experts to advise or quote on works that might be needed; and arrange finance.
In addition to the amount bid on the property there may be legal fees, auctioneer fees, and a buyer's premium as well as the usual stamp and tax duty and insurance costs. It's important to read the auction catalogue carefully to factor in these costs when setting your budget.
Often properties are put up for auction either because the owners want a quick sale, or more often because there is a lot of renovation or structural work to do. It’s essential therefore to read the auction pack including any addendums and understand the true cost of making the property rental ready.
Pay on the Day
By entering into the bidding, you are agreeing to the legal terms of that auction which usually means you are legally bound to pay a 10% deposit immediately. It’s important to know that you have the finances ready and available and know that your mortgage provider will pay out for an auction property i.e. it needs to be habitable with things like running water.
Pulling out of the purchase is costly and may mean you forfeit this 10% deposit. So, be sure you have the finances before making a bid.
Auctions can be highly competitive. Whilst the guide price can be set quite low to encourage more buyers, it is just a guide. Winning bids can be lower or much higher than the guide price, so if the bidding gets competitive make sure you stick to your budget and don’t get carried away.
Top Tips for Auction Success
Buying at auction is riskier and more time constrained than through an agent but if you do your due diligence and are organised there’s no reason why you shouldn’t be successful.
Here are our tips for buying a property at auction:
1. Do a viewing of the property
It’s essential you view the property and really inspect it so that you are fully aware of the potential renovation project you are buying. Properties can usually be viewed for 4 weeks prior to the auction.
2. Register for the auction
Ensure you have pre-registered for the auction. The deadline could be a few days to a week before the auction itself.
3. Do your research
Make time to comb through the legal pack and if necessary, let your solicitor go through it so you are aware of the results of surveys, leasehold and other legal details etc.
4. Get an independent valuation
Make sure you know what the property is worth – the auction guide price can be set low to encourage more bidders. Know a realistic price and set your budget accordingly.
5. Understand potential rental value
Get a property management company like Abode to view the property and give an estimated rental income. They will be able to advise on the best locations for rental properties as well as anything else landlords need to consider when renovating a property.
6. Consider the cost of renovations
Whether it’s new carpets, a refurbished kitchen or structural underpinning, there are usually additional costs in making a property ready for rental. Property management companies may offer refurbishment services so that you can get quotes in advance and they can then manage the refurbishment if you are successful in your bid.
7. Get your finances ready
Deposits have to be paid on the day of the auction and some properties may not be habitable and therefore suitable for a standard mortgage. Make sure you have your finances in place before putting in a bid.
8. Stick to your budget
It can get emotional when you’re in the throws of bidding and there is a lot of competition – but try and stick to your budget. If you are unsuccessful, there are plenty more properties available.
Support for Landlords with Abode
Buying a property to let at auction can be a great way to expand your property portfolio, but it's important to be aware of the auction process and the potential pitfalls.
If you’re thinking of buying a property at auction, the team at Abode can help advise you on property choice, the location and the potential rental income.
We also offer a refurbishment service assisting and advising Landlords on refurbishment to help achieve the highest possible rental yield. We source competitive quotes from trusted contractors and can manage refurbishment projects if necessary.
For more help and advice on buying a property at auction to let give our team a call on 0117 973 8866 or fill out our contact form.