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Guest blog: How to turn an auctioned property into a cash cow20th September 2013

There aren’t many better places to find a deal than at auction -

We don’t need to tell you that commercial entrepreneurs love a deal. And there aren’t many better places to find a deal than at auction – where property investment opportunities are fast-paced, rewarding and potentially very lucrative. 

Here’s how to turn a trip to the auctioneers into a cash cow:

Find your property

Sounds simple, doesn’t it? Unfortunately, for every hidden gem that you can find at auction, there are a number of duds that simply aren’t worth the time and money invested in them. So do your research, be aware of which districts and areas represent decent value and which areas don’t. 

A quick Google search can find you a number of auctioneers selling old properties in your chosen area, which can help you to introduce yourself to them and get on their mailing list. Many investors find that it’s prudent to work with a number of auctioneers who are able to contact them personally when a good opportunity arises.

Check it over

Once you’ve found a property that you think could represent value, it is possible to contact the seller in order to view the house before it goes for auction. While it’s perfectly normal for the building to look pretty unloved, with damp and structural issues, it’s essential to use every last bit of property experience you have to anticipate whether it represents value for money or not. Don’t be under any illusions – if a property is at auction, it will need some work before you make a profit on it. 

There are plenty of properties for auction that, although they may be rewarding personal projects, simply don’t add up. So do your homework – how much will renovating the property cost? How much do you anticipate earning per month once the property is completed? How much will the property be worth once you’re finished? How long will it take you to repay your debts? 

Find a way to pay

Unlike when you buy a house in the conventional way, there are no estate agents or third parties involved. The process is pretty simple – as soon as you win the property at auction, you’ll pay a 10 per cent deposit to secure it and then have to pay over the rest of the cash in 28 days. For cash-rich purchasers who have access to quick funds, this is no problem and represents real value.

However, the 28-day rule is, for many, when buying an auctioned property becomes a bit of a turn off. Even if a potential buyer has a provisional mortgage in place with a provider, it will usually take more than 28 days to finalise the details – and the buyer will have to forfeit their 10 per cent if they’re unable to stump up the cash.

However, many entrepreneurs get around this problem by using bridging finance. As its name suggests, this form of quickly-available borrowing bridges the gap between paying for the house and waiting for the mortgage funding to arrive sometime after the 28-day period is over. Although the rates on this short-term commercial finance are predictably more expensive than on a long-term mortgage, they do give an all-too valuable space of time to buy the auctioned property in the allotted time frame. It’s best to view this added cost as one of the many necessary costs involved during the purchase of an auctioned property. 

Bid away

Providing you’re happy to buy the property, this is where the fun starts for many property entrepreneurs, who go toe-to-toe with other potential investors in the auction house. You’ll be given a document by the auctioneer that sets out the details and etiquette of the auction. 

There’s no mistaking that bidding in the auction room can be an exciting, emotional experience – and one that can indulge the competitive side of many ambitious entrepreneurs – so it’s essential to keep your head when bidding to avoid overpaying. Establish your price limit before setting foot in the building and don’t pay a penny more. 

If you don’t win the property, then keep your chin up – there’s sure to be another exciting investment opportunity soon. If you do manage to come out trumps, congratulations – your hard work starts here! 

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