Residential and commercial properties often go under the hammer at auction for prices far lower than their true market values. Purchasing properties at auction can therefore pave the way for a highly cost-effective investment – particularly where ‘fixer-upper’ homes in need of renovations are concerned.
Even so, buying properties at auction is not something to approach without careful planning and forethought. With this in mind, here are three simple yet essential tips for safer and smarter auction property purchases:
1. Calculate the Costs Carefully
Properties sell for low prices at auction as they are often considered ‘unmortgageable’ in their current state of repair. This means no major lender will issue a mortgage to purchase the property, and so it cannot realistically be sold on the mainstream market.
When you are looking to buy properties like these, it is essential to take into account all subsequent renovation and repair costs. The money you plan to use to buy the property will also need to cover the renovation and repair project that follows.
Dig deep, research the property’s downsides carefully and ensure you know exactly what you are getting yourself into.
2. Learn How the Auction Works
Most auctions follow a fairly similar format. 10% of the winning bid needs to be paid right away to secure the purchase, and the rest must be paid within four weeks. Depending on the auction you attend, pre-bidding rules may apply, meaning you cannot simply turn up on the day and bid on certain lots.
Reach out to the auction house ahead of time and request a full disclosure of everything you need to know about the upcoming auction. This will also include any additional fees or commissions you may need to pay, on top of the 10% deposit to secure your purchase.
3. Arrange Your Finance in Advance
There are comparatively few high-value financial products that can be organised and accessed in less than four weeks. A conventional mortgage is not an option, as the underwriting process alone can take as long as three months.
Arranging fast-access finance ahead of time is therefore essential. Bridging finance in particular can be useful as a form of auction finance, which can take as little as a few working days to organise. Specialist auction finance products are also available, along with other types of secured loans for which it may be possible to obtain pre-approval.
4. Never Act on Impulse
Last up, there is an understandable tendency with auction property sales to bid on impulse. Presented with what seems to be the bargain of a lifetime, it can be difficult not to throw your hat into the ring.
Unfortunately, doing so is likely to prove regrettable. Prior to attending a property auction, you should have a highly detailed and defined outline of the exact type of property you are looking for. Not to mention, the kind of price you are happy to pay, the condition the property is in at the time, its location, and so on.Bidding on properties that don’t fall within your own pre-set parameters could see you walking away with considerably more (or less) than you bargained for.