We’ve all seen investors make huge profits on TV shows by buying at auction, but what you don’t see too much of is what happens when things go wrong.
Of course, buying at auction brings great potential, but you need to do your homework and get it right before the auction not just while you’re in the room bidding.
Here we will look at the process in detail right through from finding a property to sealing the deal.
Perhaps you’ve driven past a tired looking building with a big sign on saying it’s going to auction, and you want to know more. Find out who it’s being sold by and approach them for more information.
If you’ve not come across a specific property but want to get into the auction game, find your local auction house and see what they’ve got available in their upcoming auction. Ask for a link to their online catalogue and browse their site.
From the catalogue being issued to the auction date itself, you’ll likely have about a month to get ready.
Highlight a few properties that fit with the type and size of project that you want and make notes on each of them.
Every property expert in the world will tell you to view prior to auction. That’s because as soon as the gavel falls the property is yours. There’s no backing out and there’s no legislation to protect you from anything that you find.
View the properties first! Don’t ignore this advice.
Take experts with you if you can – your tradespeople, co-investors, the agent you will use to sell or rent the property, and even your solicitor. All these people will be looking for different things and with a mixture of perspectives you’re less likely to land yourself with a money pit.
Related article – 15 Warning Signs to Look Out for When Viewing Property
By now you’ll likely know which properties you want to potentially bid on. Now it’s time to cut the shortlist down further – which will actually be a good investment?
Look at the investment opportunity from different angles. Would it still be attractive if it went for 20% above the guide price? Find your cut off point. What’s the maximum you would pay for each property knowing it would still be a worthwhile investment?
Again, bearing in mind that the property is yours as soon as the gavel falls, you must have all your finances in place before the auction. As soon as the auction ends you have to pay 10%, this needs to be immediately available. You then need to pay the full balance within 28 days, so any mortgages need to be arranged well in advance.
Due to the speed of the auction buying process, professional investors tend to buy with cash and then borrow against the property at a later date.
Another option is a bridging loan which funds the purchase while you wait for your mortgage to complete. Tread carefully here though, bridging loans are only designed to be used short term and as a result are very expensive. Don’t take out a bridging loan unless you have a firm mortgage offer, or at the very least an agreement in principle in place.
Each auction property comes with its own legal pack which you need to read in full and in detail prior to the auction. It’s good practice to have your solicitor look over this too.
Some auction properties have complex legal issues or grey histories and you need to know exactly what situations you’re walking into.
Carrying out this step in intricate detail is just as important as viewing the property. The legal pack contains all the potential pitfalls that you can’t see.
Carrying out surveys is not a legal requirement pre-auction but it’s another valuable safety net to protect you. Auction properties are often in a bad state of repair so having an in-depth survey carried out by a professional is an important part of the process – especially if you’re new to the property investment world!
If you’ve done all the above, you’re all set, but your preparation is only useful if you use the knowledge that you now have.
Stick to your plan, make it a rational experience based on the facts you have and leave emotion out of it. Don’t bid over your maximum and don’t start bidding on random properties if you miss out on the ones you went for. Take the lessons instead and move on to the next auction with all your new experience.
And look, if you do miss out at auction, you’ve got all these properties on Property Deal Store to look at next! As investors ourselves, we know a good deal when we see one. Talk to us and let us know how we can help you on your investment journey, email firstname.lastname@example.org or call 01282 711561 today.