In recent years, auction houses have become the go-to place for purchasing buy-to-let properties. The method offers landlords a high yield percentage from their assets and remains one of the cheapest ways to buy a home. Figures published by EI Group found homes under the hammer sold for 37% less than the national average in England and Wales. The method also allows you to save time as a typical purchase will usually be completed within 20-28 days.
However, the number of lots available at auction has declined in the last few years as vendors return to traditional ways of selling. With more buyers looking to invest in a shrinking number of properties, the market can often become saturated, seeing prices rise well above their guide price. Whether you are a regular face or a novice in the auction room, it’s essential to know what to expect on the day, and how you are going to bid. Don’t just use what you’ve learnt by watching the BBC’s Homes under the Hammer; use the following top tips to ensure your success in the auction house.
1. Always view the property
Pictures alone do not always indicate what you are buying. Viewing the property is the best way of knowing you will not be bidding on a nightmare. An unfortunate example of what not to do comes from Sue Diamond who bought a ‘seafront home’ in 2010 for £155,000. Having not viewed the property beforehand, she did not realise that what she had bought was located on an eroding cliff edge. Less than three years later, half the house had fallen into the sea, taking Sue’s investment with it.
2. Don’t bid with your heart
It’s all too easy to bid away a small fortune when you’re in the moment. Remember, you are buying an investment; chances are you are not going to live in the property yourself. Go into the auction with numbers in mind, knowing your absolute maximum and sticking to it. This will most often be based on the rental yield you hope to achieve.
3. Remember to include auction fees
Always read the small print. Most auction houses charge a buyer’s premium, usually 1.5% of the agreed price, as well as an administration fee of around £150. This is important to remember if you are on a tight budget. Don’t forget, you will need to put a 10% deposit down on the day if you are successful, ensuring you have a means of paying the rest within the next 20-28 days.
4. Plan ahead
Doing your research beforehand is one of the most important factors for success. What is the rental market like in the area? How much will renovations cost? What is your ideal rental yield? Seek financial advice if you need a mortgage and ensure money will be available within the 20-28 day transaction period. Talk to estate agents in the area if you are unsure of the rental market, as they will always be happy to help. Planning ahead means you will be less likely to make bad investments and won’t spend more money than you have to.