How to Buy a Property at Auction (Video)

David Sandeman from the Essential Information Group gives his top tips on how to buy a property at auction.

Reasons to buy at auction include:
  • Properties sell at great prices at auction as speed of sale is as important as the price achieved
  • The properties available are often not modernised, meaning you can make the refurbishments you want
  • There are some fantastic opportunities to buy a property that is already let

Transcription

The benefits of buying at auction are several-fold really, especially if you're in a landlord situation where you're looking to rent out - firstly, the price. Properties do sell at great price at auction than on a regular basis, the reason being that the vendor is keen to get the property away and the speed of the sale is as important as the price achieved. Secondly, quite often the properties are unmodernised so you've got a chance to refurbish it - you know that all the fixtures/fittings in the kitchen etc are all going to be in really good condition. And the third one is that actually rather than buying a vacant property at auction, why not buy one which is already let? Some research that we did last week shows that the average yield on properties sold at auction which have the benefit of an insured shorthold tenancy is 8.9% which is way above what the average market rate is, so you've got clear daylight between the mortgage interest rate you might be paying, and the income coming in on the other side, so 3 great reasons why auctions may be the place to look for your next investment property.

I think a couple of really good tips if you're looking to buy at auction is firstly, understand the guide price - many people think the guide price is what the auctioneer expects to sell it for. It's not - it's a very good indication as to where the reserve is going to be set, but if it's a popular lot or if it's got a low reserve it could go for way above the guide price, so understand that and don't be disappointed if the guide price was say £120,000 and sold for £180,000 - that's what it was worth on the day.

The second one is you've got to do your due dilligence, you've got to make sure the legal pack's in order, there may be snakes in the grass, issues with the legal documents, you've got to be completely comfortable with that and have your finances in place because remember, on the fall of the gavel, the property is sold to you - there's no going back, you're deemed to have read all the legal pack and be happy with it, and obviously you would view the property as well, but those would be my 2 things to take on board.

In the auction world there's a lot of myths surrounding it - one is that all repossessions go to auction - that's not true, in Q4 of 2008 we saw about 25% of all repo's ending up in the auction room, but now it's settled down to the long term average of 10%, so90% of repo's are sold through estate agents and only 10% end up in the auction room.

The second thing is that all properties going to auction are rubbish - that's nonsense as well! We get a lot of great stock there, perfectly good to buy and move straight into - admittedly quite a lot will need work doing to them, but it's not all rubbish and there are some great opportunities to be had.