Buying rental property at auction
Buying property at auction can be a good way to build your property portfolio. However, there are some rules you should stick to in order to pick up a bargain.
1. The first step is to find out when and where an auction is taking place (most auctions will be advertised in local property papers or online). Once you have found an auction, request the catalogue. These are usually published about one month before the auction is due to take place, which will give you plenty of time to do the necessary research on the properties on offer.
2. Once you have found a property you are interested in, research the surrounding area, local amenities and transport links. If you are intending to rent the property, find out what rental returns you could expect to achieve.
3. Once you are satisfied, contact the auctioneers to arrange a viewing. If possible, try and view the property more than once. If the property is in a poor state of repair, take a builder with you when you view it to estimate the cost of any work needed. To work out how much to bid for the property, do some research and compare the price and condition of the property to other similar properties in the area. The auction catalogue will set a guide price, but this is often set low to encourage interest and bidders.
4. Once you have decided that you wish to bid for a property at auction, set yourself a budget and stick to it. Obtain the legal pack from the auctioneers and arrange for your solicitor to check the papers prior to auction day. Your solicitor may also advise you to carry out property searches prior to auction to avoid any costly surprises once the property is yours.
5. Make sure you have your funds in place. If you are successful at auction, you will be required to pay a 10% deposit on the day and you will need to pay the balance on completion (around 28 days after the auction date). If you require a mortgage, you should have this agreed prior to the auction date. If you are successful at auction and pay your 10% deposit but are then unable to find the balance, you will lose your deposit.
6. If you have never been to an auction before, it may be an idea to attend a few auctions as a dummy run to gain experience. Take identification such as your passport and a recent utility bill showing your current address, as it is likely that money laundering checks will need to be undertaken.
7. On the day, the auctioneer will describe each property, an opening bid will be suggested and perspective buyers will be invited to put their own bids forward. The price asked for by the auctioneer will usually rise in steps of £5,000, but could fall to £1,000 or £500 as bidding slows. When the highest bid is reached, the auctioneer will drop his hammer and this will signify a legally binding contract.
8. If the property fails to meet its reserve price, this does not necessarily mean the end of the matter. Speak to the auctioneers as they can still act as agents between yourself and the sellers. This can be a good way to pick up a bargain as the vendor may have set an unrealistically high reserve price.
9. If you are successful in your bid, you will be asked to sign a Memorandum of Sale and hand over a 10% deposit. This will need to be paid by cheque or bankers draft as most auctioneers will not accept cash. The Memorandum of Sale will then be forwarded to your solicitors and they will finalise the paperwork and deal with completion matters.