Buy-to-let at auction: risky or 'dead cert'?
- 25th October 2011
- Property Tips
Pros and cons of investing in a buy-to-let property at auction to buy below the property's market value.
The advantage of buying below the true market value of a property at auction is that the investor can re-mortgage the property within a year at the actual market price, freeing up more capital to make further investment.
However, finding such properties is not easy and does involve risks for the investor. Normally these properties can only be found at auction because they are the favoured mechanism for vendors who favour a quick sale over achieving the maximum price.
Here are the pros and cons of buying below market at auction:
- Successfully buying below the property's true market value means the yield on the property will be very high.
- If the property is not in need of major renovations it is usually possible to get the property onto the rental market very quickly.
- The property may need significant refurbishment if, for example, it has been abandoned and are being sold off by the local authority, or disposed of quickly as part of a deceased person’s estate.
- Buyers at auction need to have their finances in place as they are usually required to pay a 10% deposit upfront, with the rest of the balance due within 28 days.
- There is unlikely to be an EPC (energy performance certificate) for the property, so it will be unclear what the property's energy costs will be.
Stephen Ludlow, Chairman of ludlowthompson comments: “Experienced buy-to-let investors like to buy at auction where they can occasionally pick up properties below their true market value. However, these opportunities are hard to find. Having finance in place and access to a friendly builder who can make a judgment on any structural requirements for the property and how much they cost will be an advantage.
“Occasionally a property at auction will sell for over the market value because several interested buyers push up the price.
“Buying below market rate can help investors create rapid growth in the size of their portfolio, but for people simply looking to generate additional income for their retirement it is probably not worth the risks.”
Occasionally a property at auction will sell for over the market value because several interested buyers push up the price.
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