Auction tips for professional investors
Scott Hendry, director at Together, a specialist auction finance provider, shares his top five tips on buying at auction.
1. Check the legal pack
If you’re a professional property investor, you may have seen legal packs hundreds of times, but each one will have differences relating to the particular property. Make sure you’ve read the small print, as it’s often in these sections where surprises such as covenants, restrictions and rights of access are noted.
2. Don’t get caught out by the six month rule
If you’re buying the property as an investment or to let, banks generally won’t lend on it until it has been owned for six months. However, what is not as commonly known is that the vendor should also have owned it for at least six months. When buying at auction, it’s important to find out how long the vendor has had the property, otherwise it could be an issue with a high street lender.
3. Be aware of potential issues with the property
There are some issues which will immediately make funding more difficult, such as kitchens and bathrooms which are not up to scratch and can be considered unsanitary, or Japanese knotweed which can damage the property. Knowing about these in advance means you can approach specialist lenders, who are often more flexible than mainstream lenders when it comes to funding non-standard properties.
4. HMO regulation
Many property professionals look to auctions to pick up houses in multiple occupation (HMOs). These are growing in popularity among buy-to-let investors. However, by law, larger HMOs have to be licensed with the local council. These licences usually have to be renewed every five years and you can be fined up to £20,000 for renting out an unlicensed HMO. Each council has different rules and regulations for these licenses, so make sure you speak to the local authority for your planned property bid about what is required.
5. Have your finance in place
You need to think carefully about finance before the sale. Auction buyers will usually have only 28 days to complete, sometimes it can be as little as a fortnight. Plus you’ll need to put down a 10 per cent deposit on the day. The short timescales can often pose problems for mainstream lenders, so talk to auction finance specialists. You can then go into the auction room with a decision in principle on a particular lot and bid with confidence up to the agreed bid price.