All types of properties are found at auctions but certain types sell better at traditional auctions than via estate agents. Properties requiring improvement, for example, tend to achieve higher prices at auctions due to competitive bids. Estate agents are more likely to advertise uncomplicated and high-end properties rather than those with any issues. Here, we’ve detailed the types of properties that are most suited to auctions.
Residential properties requiring improvement
Properties that require modernisation or renovation are in high demand at auctions. You may be looking for a bargain property to update and move into yourself or searching for something to renovate and sell on for profit. Alternatively, you may be looking to buy a cheap property to fix up and rent out.
Owners of dilapidated properties choose auctions over estate agents to sell their properties quickly and without complications. They usually consider their properties to be burdens and this provides great opportunities if you’re a property developer.
As a first-time investor, you should look for properties that require modernisation rather than renovation until you’re more experienced. This is because you’re likely to underestimate the costs involved. As you gain experience, you’ll build good relationships with trustworthy contacts, such as builders and suppliers.
Investment and tenanted opportunities
Properties that have previously been rented out or are in good condition and situated in popular areas are good investments for buy-to-let purposes. When considering a property as an investment, check the property’s capital value and expected rental revenue.
It’s best to find a property with vacant possession but some properties sold at auctions already have tenants residing in them. A seller’s circumstances might have changed and forced them to need a quick sale. He/she might not want to make the tenants vacate with short notice, preferring to sell the property tenanted instead. Alternatively, the tenancy agreement in place might have legal reasons why the tenants cannot be asked to leave, such as a life tenancy. As a buy-to-let landlord, a tenanted property is a good option for you.
Avoid tenanted properties where the tenants are there illegally, such as squatters or tenants who refuse to pay the agreed rent. Only bid on this type of property if you are experienced at dealing with problem tenants.
Properties with issues
Many properties offered for sale at auctions have issues, which is why they’re unlikely to be sold via estate agents. This can include unmortgageable properties or those with structural issues, short leases or legal problems.
A property needs to be habitable for a lender to agree to a mortgage. As a cash buyer, this doesn’t present a problem for you. If, however, you need a mortgage for your purchase, you could consider a bridging loan as your immediate auction finance. Once you’ve renovated the property so that it’s in a habitable condition, you can then switch your short-term finance to a mortgage.
It’s important to instruct a surveyor to visit the property before you bid on it at an auction. Japanese knotweed, for example, is a common problem that makes properties unmortgageable. A surveyor can quickly notice issues like this as well as problems like dry rot, subsidence or rising damp.
If you don’t instruct a surveyor and are relying on a mortgage, you will be in a very bad situation if these issues are detected after you’ve made a winning bid. At that point, you enter a legally binding contract with no legal recourse and must quickly find alternative finance to complete within the short timescale.
If you’re a property developer or builder, a property with structural issues is a good project to take on. As you’ll be able to identify what needs to be done and calculate the costs accurately, you’re in a good position to bid and get a property for a good price.
Check the legal pack for the length of the lease. Even though you may purchase the property at a good price, the cost of extending a lease can be very expensive. Lenders are usually reluctant to offer mortgages for properties with short leases. If you’re using a mortgage for your auction finance, your lender may insist that an arrangement is put in place for a lease extension.
Often, properties are sold at auctions with bad titles. It’s essential to instruct a solicitor to check the legal title before you bid on a property. You may be prevented from getting a mortgage if there is a flaw in the title and you’ll lose your deposit if you cannot complete. Another legal issue you may encounter can be arrears on the property. If you haven’t done your due diligence before the auction, you are legally liable for these once the hammer falls.
Auctions are a great place to find unique and rare properties. These can include structures such as a windmill, sea fort, barn, nuclear bunker, castle, converted church or a converted warehouse. You’ll find residential properties in prime locations with unusual features that make them harder to sell via estate agents but very attractive at auctions. Unique properties can often achieve very high prices due to the high amount of interest and competitive bidding at auctions.
This type of property combines commercial and residential aspects, such as a shop with a flat above it. Mixed-use properties fare well at auctions as they are popular with both investors and owner-occupiers. If you are looking to buy a pub with self-contained accommodation in Bexley, for example, you can search through auction catalogues for mixed-use properties in this area. Likewise, if you’re an investor, an auction is a good place to find a building containing offices and flats in Bexleyheath, for example.
Mixed-use properties can be sold either with vacant possession or with tenants residing in them. Depending on your reason for buying a mixed-use property determines which is more beneficial to you.
These can be sold as vacant or tenanted and can include offices, shops and industrial units. You might be looking to use the property yourself or benefit from the long-term rental yield as an investor. Another type of commercial property is a garage. You can find a lock-up garage for yourself or purchase a block of garages as an investment.
Building plots and land
If you’d rather build your own home or are a developer waiting for a new investment opportunity, buying some land or a building plot at an auction is another option. Research its potential and bid knowing you’ll be able to commence your plans quickly after a short completion timescale. Note that building plots and land can be sold with or without planning permission.