Buying a property in auction is an amazing way to source great deals, I know this because I’ve consistently purchased in auction over the past 11 years and every single time it has delivered amazing results. I’ve purchased flats, houses, developments with planning etc and even a church! and every single purchase has been a good deal, where I can remortgage or sell on with good margins and rental yields. Even my own home was purchased at auction for £240k less than the originally listed market price!
Lots of property investors avoid investing here as they suggest you can get it wrong, overbid and be left with a money pit the previous owner was trying to hide. Indeed, without the right process, buying via the auction process is more risky than the traditional (and there are lots of horror stories to support this), but in my experience, following the right method of selection, ensuring you know what to out look for and ensuring you do the right due diligence dramatically reduces any such risk.
The selection process for buying the right property at auction is no different than selecting a normal property on the market, except that you need to make your decisions in a quicker timeframe and be highly alert. Once the hammer goes down, you own that property and are liable for 10% deposit on that day!
Any red flags you see prior in a property needs to be investigated and investigated hard! I have often passed on a property if I wasn’t able to get a professional in prior to the auction day to check out a suspicious crack or structural issue.
Now, don’t get me wrong buying at an auction is not for the faint-hearted ( but which business is?) especially when you’re purchasing for the 1st time. Indeed, every time you buy in auction there is a distinct “rush” which you can get addicted to, but it doesn’t mean it is not a good deal, its because you know if you get that deal at the right price, you’ve just secured a great bargain.
I cover the elements of the right deal in this podcast. If you abide by these rules, you are most definitely going to walk away with a bargain.
3 TOP REASONS TO LOVE THE PROCESS
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Everything moves quicker
For an investor, time is money. Unless you already have a pipeline of deals, it represents a really straight forward process from date of catalogue release until key is in your hand. Once the hammer goes down, you own the property, you have effectively completed on that day and approximately 30 days later you will be holding the keys. No need haggling with property owners, or running the risk of getting gazumped, as this has already been done. Even the mortgage process moves faster, the legal and conveyancing process is amazing as lawyers move at lightening speed to get these deals through and everyone in the process is greatly incentivised to ensure your application moves quickly.
2. You can predict and plan out your property portfolio building strategy
The cash recycling process can be planned so you have these turnkey projects ticking along as the foundation of your business. For simple projects, you can really plan what I call an Accelerated BRRR method. From day one hammer goes down,
Month 0 – Source the right property & hammer goes down!
Month 1 – Completion process with keys in hand
Month- 2 & 3 Refurbishment and presentation of the property
Month 4 – Remortgage process,
Month 5-6 – Cash back in BANK.
You can manage your project pipeline and have them stacked across the year providing ongoing and an almost predictable revenue cycle.
3. Your cash can be recycled out of your projects quicker:
This requires selecting the right property: Using the Accelerated BRRR method, you can force the value of the property, estimate the refurb costs and work out the end GDV to pull out your funds. There are mortgage lenders that will start the remortgage process within 3 months provided you can demonstrate 2 qualities:
1) The property wasn’t purchased under duress from the seller, which an auction purchase automatically qualifies for as it wasn’t a direct vendor sale. Under these conditions, the previous owner cannot claim the sale was made under difficult conditions and is one of the main reasons there is a requirement for buyers to own properties for a minimum of 6 month before lenders are happy to remortgage.
2) that you have added value to the property in the reconfiguration.
Once you can demonstrate these 2 qualities you can quicken the cash recycling process, so you have these turnkey projects ticking along as the foundation of your business, from date of purchase to date you pull out your funds.
For more information on buying in Auction, you can reach out to me and I’ll be happy to discuss.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without special consideration of your investment objectives, financial circumstances or risk tolerance of any specific investor and might not be suitable for your investment. Investing involves risk including the potential loss of the principal capital. This information is not intended to, and should not, form a primary or single basis for any investment decision you make. It is good practice to always consult your own legal, tax or investment advisor before making any investment, financial planning and tax considerations or decisions.
Coming soon, i’ll be covering the 7 mistakes to avoid when buying in auctions.
