Last week a home in County Durham was sold at auction for just £8,250.
The property is in need of significant renovation, but it has been seized on by auction evangelists as evidence that the best deals can be found under the hammer.
Buying property at auction can be a daunting prospect, and it is not without its risks. But if you are aware of those risks, and you are able to stay calm, the auction house can help you expand your rental portfolio in a remarkably cost-effective way.
What are the benefits?
The most obvious benefit associated with auctions is the significant potential reduction in price. Although the County Durham case is exceptional, it illustrates the fact that there are great bargains to be found at auction.
Many buyers are also attracted by the potential for making a purchase without having to deal with an estate agent. While agencies can provide a valuable service for both buyers and sellers, many professional landlords prefer not to deal with them – either for reasons of cost or simply in order to make the process as quick and as simple as possible.
What are the risks?
While there are significant advantages associated with auction purchases, there are also some major risks.
The first and most important of these is that auctions tend to encourage people to rush into decisions that they would not otherwise take. It is remarkably common for people to buy properties at auction without even having seen them. For most people this should be a huge no-no; instead you should ensure that you commission surveyors’ inspections and valuations as you would with any other purchase.
But you must also remember that there is, of course, no guarantee that you will win the auction. The second significant risk is therefore that you will spend the money to have inspections commissioned and that you will, where applicable, spend the time securing a mortgage, only to find that you are outbid. You must factor these possibilities into your planning.
Top tips for auction success
1. Watch first
The auction process can be difficult to understand in the first instance. To get the hang of it, go to a couple of auctions just to watch. This will help you understand how the process works, and will help ensure you can concentrate on the important bits when you eventually come to bid.
2. Always visit
Before the auction, request a catalogue to see what will be up for sale. If you see something that interests you, arrange a visit. Remember that you will need to have a surveyor inspect the property. Don’t be tempted into buying a property sight unseen; the potential problems could be disastrous.
3. Take advice
Buying at auction doesn’t mean you don’t need to take advice. There is a range of experts with whom you should consult before you make a purchase, in addition to the surveyor. In particular you should make sure you have a lawyer look over the legal pack for the relevant property. Again, its contents could have significant implications, and it is important that you fully understand them.
4. Remember finance
When you win an auction you will be required to put down a 10 per cent deposit immediately. You will normally be expected to settle the remaining amount within 28 days. It is therefore imperative that you have the relevant finance in place in advance. If you need a mortgage, remember that you will probably have to have the property valued.
5. Stay calm
Finally, remember that the auction can be an exciting, stressful environment – and it is one that is specifically designed to make people spend as much money as possible. Make sure that you set yourself an upper limit, and that you stick to it. It is often best to be accompanied by a trusted person with no financial interest in the deal, who will be able to help you keep calm.