With the credit crunch hitting and property prices dipping, it's never been a better time to pick up a bargain property investment. If you want to become a buy-to-let landlord, or you're an existing buy-to-let landlord who wants to extend your property investment portfolio, then why don't you head down to your local auction house?
It's not rocket science that the best start to the purchase process is to buy your buy-to-let property at below market value (BMV). Buying a property at anything between 5 to 15 per cent below its true value is a great start to your investment. If you purchase a £100,000 buy-to-let property for £90,000, for example, then you'll increase your returns by over five per cent per annum during a 25-year investment.
Avoid buying a "bargain" online
There are numerous buy-to-let chat rooms online where individuals are promising to sell property below its true value. But stay well away from such propositions, particularly if you happen to be a novice buy-to-let landlord or you don't know the area where the property is located.
These deals appear too good to be true and this is usually because they are! On the whole, people selling on these websites know the property market better than you do and this will instantly put you on the back foot when it comes to negotiating a good price.
Buy cheaply at auction
The best way to buy a cheap buy-to-let property is to purchase it at auction. Auction houses are crammed with "desperate" vendors, who need to sell their property fast. As a result, they often accept a price far below market value, just to get rid of it.
Auction lists are also full of "tired" looking properties. Owners often can't be bothered, or can't afford, to make over the property in order to get the best price. This is then great for a buy-to-let investor who is happy to do work on the property.
Auctions often sell properties with problems, such as issues over ownership, structure and access, and this is why such properties haven't been sold in the usual manner via an estate agent. But, as long as you do your research into what the problems are, you'll usually find that the issues can be easily resolved. Plus, they may not be a problem to you, as a buy-to-let landlord, who wants to use the property for its income and not, like most purchasers, as a home to live in.
Auction houses are also full of failed buy-to-let property investments. Many naïve buy-to-let landlords have been stung by purchasing designer apartments which were way over their market value. You can often pick up these properties 1 to 2 years' later as repossessions and you'll get 20 to 30 per cent off the original selling price (and this price supposedly included a market discount!).
Where to find auction properties
If you want to find your nearest auction, then just take a look in your local paper. There should be adverts or listings of future events.
You can also buy publications on auctions, such as the Estates Gazette. But if you don't want to subscribe, there are websites, such as UK PAD and Auction Property for Sale, which have full listings throughout the UK.
Buying a property at auction is not as difficult as it sounds. Lawpack's guide, Buying Bargains at Property Auctions, tells you all you need to know on how to go about it.
But, remember, that you must have your financing in place before you make a purchase as the auction house will need a 10 per cent deposit there and then. They then want you to pay the remainder within 28 days of your bid being accepted.
This means that a traditional buy-to-let mortgage isn't suitable as the times for completion for these mortgages frequently stretch far beyond these tight deadlines. So, unless you have direct access to cash funds, you'll need bridging finance.
Bridging finance is the facility of a short-term loan, where the interest is well above normal mortgage rates and the interest also charged daily. Remember that this kind of finance isn't regulated by the Financial Services Authority (FSA), so the usual consumer protection rules don't apply.
So, be careful when you're choosing the right bridging finance company and make sure that they're a reliable provider and that you're receiving a competitive rate.
Turn the property around as quickly as possible
Once you've arranged the bridging finance, you need to get your buy-to-let property rentable as quickly as possible and you need to re-finance the buy-to-let property, so that you can replace the bridging loan with a cheaper, and more sustainable, mortgage.
As long as you follow these rules, then a visit to an auction room could get you a genuine discount and a sound long-term property investment.
More information on picking up a property at auction can be found in Lawpack's bestselling book Buying Bargains at Property Auctions. Written by Howard Gooddie, a property auctioneer with 45 years' experience, the book spells out how straightforward the auction route can be and divulges the tips and practices of buying a bargain property at auction.
Published on: June 2, 2008