The Pros and Cons of buying an investment property at auction

When you’re considering purchasing an investment property, price is among the most important factors. That’s because this is an investment, something you are hoping to make money out of either over a long-term or short-term basis.

Building good relationships with estate agents in the areas you are keen on building a portfolio is one way in which you can quickly identify suitable properties that become available. Another great way is to buy property at auction.

There are a number of benefits from buying at auction:

  • Transparency – the price agreed on the day is final and binding with a deposit paid immediately which remains with the seller if the purchase doesn’t go ahead.
  • Speed – the time-frame of buying the property is typically around 4 weeks from the date of the auction. This is because much of the paperwork has already been completed by the solicitors and the deposit and contract exchange is made on sale day.
  • Renovation and probate properties regularly come up – they often require a lot of work. However, once you’ve done that and brought it up to the standard you require you can then rent it out or sell it on – for a profit. It’s almost always cheaper to improve a home than to buy one that has had improvements made by someone else.

As with all buying processes, however, there are some downsides. In terms of buying an investment property at auction, these can include:

  • Speed – if you’re relying on a mortgage to make a purchase the speed at which you must complete can be a stretch for some mortgage companies.
  • Contract small-print – if you don’t spend a good amount of time checking through the paperwork before sale day you could find that you’ve agreed to buy a property with a number of restrictive covenants that limit the scope of your plans.
  • Price – on the day the price could be bid up much higher than you expected so be careful you don’t get carried away! Another possible occurrence is that the bids don’t reach the price the seller requires and it’s withdrawn. There is the option to discuss this after the auction though and to do a deal out of the sale room.

There are, of course, many other details to consider including the location of the property and the potential returns to expect whether you’re planning to rent or re-sell.

If you’re new to auctions or only considering them then you might be interested in some statistics on recent sales. The latest property auction figures from the Essential Information Group (EIG) show that February proved a bumper month.

The total number of lots for sale at auction in February was 4,450 a 16% increase from the same time a year earlier when there were 3,831. There was also a 16% rise in the number 

of lots sold: in February 2015 2,995 property lots were sold at auction, this surged to 3,472 this year.

EIG managing director David Sandeman said: “Our records show these to be the highest numbers ever recorded in the month of February.” He added in the EIG newsletter that activity was likely boosted by people making final purchases ahead of the stamp duty changes in April.