Chris Baguley Blog
Friday 6th July 2012
I’m finding that as a result of the downturn in the economy, cheaper properties are becoming easier to secure, thanks to the growing number of repossessions on offer at auction.
I’ve noticed that in tough times, property auctions represent real opportunities for professional investors, but you must be armed with knowledge before you invest.
Property investors are making handsome returns by being adept at buying these ‘repo’ properties. After all, lenders are keen to sell the property at the best achievable price, which can often be much less than the mortgagor originally paid. Add to this the fact that less experienced investors have left the market due to tougher access to finance and less of an appetite for repossessions, and it becomes a perfect platform for the experienced property investor to excel.
In terms of residential properties, between 15% and 20% of all lots offered at property auctions are repossessions. The high street banks want speedy sales and investors want to grasp opportunities. The auction rooms are perfect for this type of property – if you know what you’re doing.
I predict that more repossessed properties will be sold. Buy-to-let investors who do their research can find properties that achieve strong yields and make excellent long-term investments. This is especially true of properties in city locations where rental values have increased quicker than out of town properties, climbing on average by £131 a week (or £524 a month) over the past decade.
I believe that to get a successful deal on a repossessed property you need two core ingredients at your fingertips – finance and information.
You need specific information about the property itself and general information about the state of the market in order to make an informed choice about a repossessed property. Remember the principle of caveat emptor (buyer beware) is highlighted in these types of purchases.
I recommend starting by viewing a property ahead of an auction.
You’ll need to satisfy yourself about exactly what state the property is in and what the purchase includes. If items like radiators and the kitchen units have been removed, you’ll need to make sure that your funds cover the cost of replacing them. I advise you to get a survey completed on the property. Don’t be tempted to cut corners, even if you’re an experienced investor – it could be an expensive mistake.
The way to spot these properties at auction is to see if they are labelled ‘mortgagee in possession’ or ‘on the instruction of the receivers / by order of the mortgagees.’ This means that the bank or lender is now resorting to an auction to generate the best price on the day.
The reserve price on the lot is often very low, which tempts more people into bidding. The financial key to success for investors is buying properties at the right level. The yield is the biggest influencer of this. If it stacks up on yield it will sell, and if not, the yield will dictate the future value of the asset.
If your bid is successful, you are legally bound to purchase the property and must exchange on the day. Never bid on a property at auction unless you are certain you can get the funding quickly and complete within 28 days. Having the finance ready is essential and helps you get the best opportunity on the day.
My top five tips for buying a repo are:
1. View the property
2. Have finance ready to complete the deal within 28 days
3. Arrange the paperwork in good time
4. Have the deposit (usually 10%) in hand
5. Bid within your budget!
Chris Baguley is managing director of auction funding specialists Auction Finance Ltd
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