Auctions have become a particularly popular way to buy property, especially HMO properties. While in-person property auctions were limited during COVID-19 lockdowns, online auctions saw a huge spike in demand. In the coming years, the sector is expected to see further growth in both in-person and online auctions.
If you haven’t bought a property at auction before, it can be intimidating. However, there are a number of benefits that come with buying in this way. Property investors can often secure better deals at auctions, and the buyer and seller can benefit from a faster sale. Many investors are looking for alternative buying solutions that provide better security, results and speed.
There are still a number of considerations to make when buying at auction, especially for HMO investments. This makes doing your research and due diligence even more crucial.
Tips for Buying HMO Properties at Auction
If you are considering buying your next HMO at an auction, here are six tips to help you navigate some of the risks and challenges that come with buying property in this way.
1. Visit the Property Beforehand
Auction houses usually release a catalogue of the properties being sold at their next auction. This is typically published at least three weeks before the date of the auction. You can often register your interest on their website and arrange viewings of the properties you’re interested in.
Prior to bidding, it’s imperative that you visit the property. And multiple viewings can be beneficial. It’s also recommended to bring a building surveyor with you, so they can assess if there are potential structural problems. Additionally, bringing a builder or handyman along could allow you to get cost estimates on the work that needs to be undertaken.
2. Always Check the Legal Pack
A legal pack includes title documents, special conditions of sale, local authority searches, an Energy Performance Certificate and other important paperwork. Always read the small print of the legal pack as surprises can be found there, including hidden restrictions, covenants, and rights of access.
It’s recommended to instruct a solicitor to check over the legal pack before bidding. Any issues can then be brought to your attention prior to the auction. This can help you decide whether or not you should proceed with bidding on the property or if you should carry out additional investigations.
3. Be Aware of Potential Issues
Some properties at auction come with issues that are expensive to fix or that make it challenging to get a mortgage. Or a property could have an inadequate tenancy agreement in place where the tenant has stopped paying rent.
It’s extremely helpful to know about any potential issues in advance as you may no longer want to bid on the property or it may alter what your top purchase price would be.
And if you successfully bid, you will have to pay a deposit on the day, which essentially ties you to the purchase of the property. Otherwise, you risk losing that deposit. This is why it’s key to seek out the relevant professional advice prior to the auction date.
4. Stick to Your Budget
Set your budget, and stick to it. When you’re in the auction room, you could get carried away with all of the excitement. You need to know what your upper limit is to ensure you will still be able to earn a profitable return on investment from the HMO property.
Properly stress test and appraise the property. Factor in different levels of purchase prices to see what the whole deal looks like. Stress this to know exactly where you can end up and figure this out well before the hammer comes down.
5. Have Finance in Place
Prior to the auction, you’ll need to know how you’ll finance the purchase. Make sure you’re in a position to pay quickly , whether it’s through your own capital, a mortgage, private finance or a mix of all three.
If you end up securing the winning bid, you’ll be required to pay a 10% deposit on the day. Additionally, when buying at auction, transactions are usually required to complete within a certain amount of time. The industry standard is within 28 working days.
This short timescale can pose problems, particularly for mainstream mortgage lenders, so if you are considering buying a property at an auction, it’s helpful to talk to an auction finance specialist and get a mortgage agreement in principle if you are planning to use traditional high street finance.
6. Keep HMO Regulations in Mind
Make sure you know what’s required for HMO properties in the local area. Every large HMO in England must be licensed with the local council. And a number of local authorities have also rolled out additional licensing schemes, requiring smaller HMOs to be licensed too.
And as there are specific legislative requirements for HMO properties, ensure you’ll be able to bring the property up to the right standard within your budget. Check with your local housing authority if you are unsure about the licensing and standards you must comply with.
Auctions can be a great way to buy HMO properties. But make sure you have undertaken your due diligence thoroughly. If you follow these tips effectively, you will be well on your way to potentially securing your next HMO property at auction.
For more helpful advice and insights on starting, scaling and systemising your HMO property business, join The HMO Roadmap now!
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!