One of the best ways to enjoy a successful property investment enterprise is to buy property at auction and here we will look at six auction tips to help you succeed with property buying.
There's no doubt that there are big savings to be made on property purchase prices but you may have to take a risk when bidding on a property.
However, there are some issues that you need to appreciate before going to an auction including how to prepare ahead of making a bid, how does the auction work and where are these auctions being held?
Tip 1: How to find a property auction
The first step is to find an auction that is selling properties in an area you are looking to invest in.
While auctions in London will have properties in the capital as well as the Home Counties, they are unlikely to have homes for sale further afield.
This means that you have to look at travelling to an auction taking place in another part of the country since these auction houses tend to specialise in local properties.
And, if you're a regular visitor to the Premier Property Club website, you may have read that our analysis of great investment areas to invest in show that the north west of England, particularly Manchester, offer great and lucrative opportunities.
So, once you've located an auction house that will meet your needs you will need to get in touch and sign up to its mailing list for auction catalogues.
It's this catalogue that will help you decide whether it's worth travelling to the auction itself and should be made available several weeks before the auction takes place.
It will also make clear when the property viewing times are, the guide prices - this is the amount the auctioneers expect the property to sell for - and also the conditions of sale.
Tip 2: Read the fine print
Bidding on property at auction can be fraught with difficulties but if you download the auctioneer’s legal documents then these will prove useful.
It's important that you read these documents carefully and, if necessary, send them to your solicitor as they will indicate how high you may be able to bid, or even if you can bid at all.
One of the issues you need to be interested in when reading these legal documents is whether a search is included, often they are, but if not then you need to speak with your solicitor to carry out a search before the auction takes place.
Obviously, you may be wasting your money by doing so and the same issue also applies to whether you carry out a survey on a property before bidding on it.
A survey may be a sound investment though some bidders may be reluctant to spend the money doing so but you could attend a viewing with someone who understands what to look for, for example a builder you can trust.
It's at this point we should highlight that the flats and houses that are being sold at auction usually require some degree of modernisation and unless you are aware of the full extent of the work necessary then you could be making an expensive mistake.
This is where a survey may pay dividends as it will reveal what needs to be done and give an indication of how much you'll need to spend bringing the property up to a decent and modern standard for you to let or sell on.
Tip 3: Understanding property values
One of the important aspects for property investment is understanding when you have a good financial opportunity in front of you which means researching local house prices before the auction.
It's important that you know how much the property is actually worth and then work out how much you are prepared to bid.
Another important point when understanding the value of a property is not to get carried away when bidding begins and then bidding higher than your maximum amount or more than you can afford.
If you think you may get too excited and overbid then either take someone with you to remind you how much your auction limit is or get them to bid on your behalf. It's also possible to bid by proxy which will see the auction house bidding up to specified limit on your behalf.
Tip 4: What you need to know auction
Before the property auction takes place, you'll need to register before you can bid so you will need at least one form of ID, check with the auction house beforehand.
Also, you will need to place a deposit on the property when the hammer falls and you will need to know what methods of payment will be accepted for this deposit.
Usually, the deposit will be around 10% of the property's purchase price and there will be an auction house fee to pay immediately.
Many people looking to attend an auction may not appreciate that they don't require the full amount of money upfront since the completion date for the exchange of contracts is usually about four weeks after the auction ends, though this timescale does vary.
It's important that if you fail to complete in time then you may lose your deposit and risk being sued by the property’s seller. Essentially, it's usually a safer option when buying property at auction to pay with cash rather than sourcing a mortgage, which you may struggle to obtain within the timescale, or apply for bridging finance.
Tip 5: Understanding the guide price
While we are all looking for bargain properties to buy at auction, the guide price is merely what the auction house is expecting that particular property to sell for. Properties can fetch much more and you will need to be prepared for this happening.
Also some properties at auction will have a reserve price and this will be unknown to you but the auction house will know what this is. With a reserve, if the bidding doesn't reach this amount you may be able to see a deal with a property seller, but you must use the auction house to do so, on the day of the auction.
Tip 6: Negotiate outside of the auction
As mentioned earlier, not all properties will sell at auction which gives an investor an opportunity to negotiate with the seller to see if they will sell at a mutually agreed price.
It is also possible to check online with the auction house to see which of the properties did not sell and this will usually give the price that the property is available for.
Sometimes it's possible to buy a property before the auction begins but some sellers may refuse to discuss prices because they appreciate that when bidding begins the price can jump quickly when several investors bid against each other.
Finally, while there are excellent bargains to be had at property auctions, it's always worthwhile doing your research thoroughly and understand how the property investment market works to ensure that your investment delivers the returns and yields that you are looking for which means speaking with the Premier Property Club team.