Buying property at auction to flip for profit
With property prices rising and homes in demand, more investors are being drawn to purchasing residential property at auction to renovate and flip. But like any investment, care is needed to make sure the project is profitable.
Property auctions have always offered a way to purchase property at a potentially lower than market price, giving buyers the chance to add value through renovation. For investors, it can be a good way to buy property to restore and flip for a profit, and some first-time buyers even find it can be a useful way to get onto a tricky property ladder for a more affordable price.
In the first quarter of 2022, the average UK sold house price was £277,287. In contrast, according to EIG, the average sold price of residential property at auction was £181,971[RB1] . Comparing these prices, it’s understandable to see one of the attractions of buying at auction.
In the current market though, even the cost of residential property sales at auction are increasing, according to a national auction analysis by the Essential Auction Group. Figures for residential property sales at auction reveal that between May 2021 and April 2022 there were 20,668 properties for sale, with 80.4% successfully sold at auction. Overall, their sale prices were up 15.5% on the previous year.
Despite the increase in auction property prices, flipping property remains popular. In fact, according to Google Keyword Planner, ‘flipping houses’ is searched for 8,100 times every month. The long-running daytime BBC series, Homes Under the Hammer, shows the highs and lows of buying property at auction and follows the experience of buyers and renovators. There’s even a new series on Channel 4, fronted by George Clarke, that is challenging teams of inexperienced people to buy, flip and generate profit from property for the chance to win £100,000.
Making a profit from flipping auction properties isn’t guaranteed and it’s not always easy. Sometimes you can strike it lucky and find a below market value property in good condition for a steal in a perfect up-and-coming area, but with lots of competitors also looking for these deals, it can be hard work.
In order to stand a chance at being successful with property flipping, investors need to be savvy, business-focused and stick to some golden rules, both before and during the auction.
Research is key before buying at auction
Prior to the property auction, it’s essential to do your homework and thoroughly research the property you’re interested in and the locations – this is especially true if you’re unfamiliar with the area. Always read the legal pack and check out the terms and conditions of the sale. Visit a property before you bid on it at auction and have a survey completed, so you know exactly what state it’s in and don’t get any unexpected surprises further down the line.
Check out factors such as the location of schools, shops, hospitals, amenities and transport links and look at the market to see the types of properties that are selling and what they’re going for.
It's important to ensure you buy the right type of property in the right area, for the right price, to increase your chances of successfully flipping it and making money. For example, if it’s an area where flats and small terraced houses are popular, it may be harder to make money on a three-bed detached house. Look at the ceiling prices of properties in the area and keep this in mind when you’re setting your own budget and considering what you could sell a renovated property for.
It’s crucial you have your finances sorted before even thinking of bidding on properties at auction. Buying at auction is often deemed as being better for cash buyers, however financing auction properties is possible. The typical routes for financing are either property auction finance or a traditional mortgage.
Whilst traditional mortgages have lower interest rates they take on average 2-4 weeks according to Zoopla so if there’s any delay it may not work within the 28-day timescale in which you need to complete. Additionally, a property bought at auction may not be mortgageable if it’s in a dilapidated state, missing a bathroom or kitchen - a likely scenario for those intending to purchase a doer upper at below market value.
Property auction finance is essentially a bridging loan that is intended to bridge the gap between initial purchase and refinancing or the sale of the property. Bridging loans can be completed in a matter of days, not weeks so are well placed to meet the 28-day completion deadline. They’re also available for properties that are currently uninhabitable, but because these loans are considered higher risk they come with higher interest rates and fees so it’s important to only use them for the shortest time possible.
You’ll also need to work out how much you’ll need for all materials, labour and other costs and ideally have a reserve pot on hand to cover unexpected repairs or bills (sadly they are common when renovating property).
Think about who’s doing the renovation work and, if necessary, build contacts in advance. If you’re using tradespeople, it’s useful to have them tentatively booked in and ready to start work.
Bidding for property at an auction
On the day of the auction, you’ll need to keep focused. Auction bidding, whether online or in-person, can be frantic and fast. You have to act quickly and think on your feet, but it’s essential to bid with your head, rather than your heart, and keep your highest possible price in mind at all times.
It’s very easy to get caught up in the moment and bid higher if a bidding war starts, but as the first episode of George Clarke’s Flipping Fast showed, you can end up in hot water further down the property flipping line if you pay more at auction than you’d budgeted for.
If you win a property, you’ll normally need to pay a non-refundable deposit immediately, and then the balance later. The post-auction buying process is quick and must usually be completed within 28 days.
Time is money, so the sooner you can get started with renovating your property, the better. At this stage, project management skills become important, as you’ll need to manage what needs doing when and who by. If you’re using tradespeople, you’ll need to negotiate availability and ensure you have all the necessary materials and supplies available at each stage of the renovation. Keep a careful eye on your budget, as expenses can easily add up. It can be complicated and stressful, so utilise tools such as spreadsheets to keep on track.
Buying residential property at auction to flip for profit can be a rewarding process and may yield good profits, but don’t go into it with your eyes closed and expect hard work – and maybe a few sleepless nights – along the way.
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