Buying properties through an estate agent may be considered the norm, but many landlords use property auctions to acquire new homes to add to their portfolios.
Auctions are popular among the investment community because properties often sell for below market value, and auction sales have a relatively quick turnaround time of just 20-28 days.
On top of this, unusual properties, commercial units with residential potential or those which can't be sold via the open market often find their way to auction, attracting savvy investors with an eye for a bargain.
Property auctions are a great tool for landlords but to benefit from them, there's a lot of research and planning involved.
As more landlords and investors flock to the UK's property auction rooms, we've put together some tips for beginners as well as some do's and don'ts.
Use the catalogue to its full potential
When investing at auction, you should treat the auction catalogue as your 'bible'. You'll be able to acquire a print copy from the auction house or, alternatively, most auction houses publish the catalogues on their website, too.
Once you've got your hands on the catalogue you should study it carefully. Identify and mark all the properties you're interested in and then compare their strengths and weaknesses.
It's best to take the guide prices in the catalogue with a hefty pinch of salt – it may be better to go online and check the auction house's records where you'll be able to see how much a similar property was sold for at an earlier event.
One thing that you shouldn't do when studying the catalogue is gloss over the commercial property listings. Just because you're looking to offer a residential property to let, doesn't mean these listings aren't potentially of interest. A lot of commercial listings already have the right to be changed into residential use and so one of these could work out as a fantastic investment opportunity.
View properties before bidding
Once you've whittled down which properties you're interested in, you'll need to arrange viewings. There's nothing like seeing a home for yourself – if you were buying the property through an estate agent you would certainly view it before buying. The same applies to property auctions, so make sure you get something in the diary.
As well as a feel for the property, viewings help to provide a sense of the local area, which could be invaluable when weighing up whether or not the property will work for tenants. Of course, a viewing also allows you to identify any problems with the property as well as raising any queries you may have.
What's more, if there is a property you're dead set on, it's generally advised that you pay for a survey to make sure there are no major issues or structural damage.
Beginners should visit an auction first
Bidding at property auction is often fast-paced and sometimes frantic and for this reason, if you've never been to one of these events before, it may be best to sit in without getting too involved your first time.
A lot of the bidders will be experienced investors and auction specialists, so it's worth taking the time to watch an auction unfold instead of jumping straight in and being out of your depth.
Attending an auction with no plans to buy also gives you the chance to get a feel of where in the room you'd like to be at future events and you can also watch other bidders to see how they get the auctioneer's attention – it's little things like these which could be the difference between you picking up a bargain or not.
It helps to get used to the process of signing in, showing identification and proof of your 10% deposit. The more relaxed you are, the easier it will be for you to make a logical, calculated decision on a property if bidding starts to get competitive.
Research the investment opportunity
As well as studying the catalogue and the property itself, it's wise for landlords to do additional research into the strength of the investment opportunity. For example, purchasing a buy-to-let property now incurs a 3% stamp duty surcharge, so taking this into account, do the numbers still add up?
You'll also need to work out the property's potential yield – if it's extremely low, it may not be the ideal rental property. Carry out research on the local area, is there a strong rental market and is there lots of demand from tenants? What type of tenants will this property and location suit, families, students, young professionals?
Finally, if the property needs a lot of work doing before you're able to let, it's crucial that you work out how much it's going to cost and factor this in to all of your calculations. You'll need to map out exactly what needs doing and get a range of quotes from professional tradespeople.
Do's and don'ts for buying at property auction
• Do speak to estate agents and solicitors, their advice and knowledge could be invaluable.
• Do be clear when bidding, a scratch or flick of the hair could be construed as a bid so don't get caught out.
• Do sign up for alerts from local auction houses, if you're a serious buyer this will stop you missing any potential investment opportunities.
• Do remember that if you're not able to attend the auction, you can still make a bid beforehand.
• Don't get carried away – this is not a pair of socks on eBay, so stick as close as you can to your pre-determined budget.
• Don't be fooled by the guide price – the best properties are likely to significantly exceed this, especially at a busy event.
• Don't forget a winning bid is legally binding – the moment that gavel goes down you're liable for a 10% deposit.
• Don't be blasé about the legal pack – read this in full and check with an expert if there's anything you're unsure about.