Should you consider a below market value property investment?

Looking for a property investment that’s below market value? Property auctions have long been seen as a means by which investors can pick up a property for a song, far below their market value and make a good return on their investment. But is this the case or are property auctions more of a risk than you might at first anticipate.

Why is a property being sold at auction?

First of all, when considering a property which is being sold at auction, ask yourself why it is being put up for auction. It could simply be that the seller wants a quick sale or that the property has been for sale with estate agents without success. Alternatively, an auction sale could indicate that a property has been repossessed or is going to be repossessed imminently.

Is there a serious problem with the property?

However, if a property is up for auction and has been proving difficult to sell, it could be indicative of a significant problem, potentially one so serious that potential purchasers are having difficulty getting a mortgage. Difficulty securing finance could reflect a serious structural flaw with the property or a history of flooding for example.

Is there a problem with the area?

Alternatively, a sale at auction could indicate that there is a problem with the area; a lack of investment, infrastructure, and services could have left it looking run down for instance. However, an auction sale could reflect other problems too, like a risk of flooding or a high crime rate in the area. If you are concerned about the latter, check out the postcode on the police website.

Pay attention to detail

When buying at auction, always pay close attention to the information you are given by the auction house — read all of the documents carefully and don’t simply assume that everything is okay. Go through the paperwork with a fine tooth comb, even a slight diversion from the usual turn of phrase could indicate a problem, so make further investigations if this is the case.

Conduct your own research

Also, conduct your own research too; look on local news websites to see if the street or neighbourhood has received negative media coverage. Also, look on property websites to see what similar properties are selling for and find out useful information about the area.

Surveys are crucial

Always have a survey completed on the property for which you are considering bidding — many auction purchasers don’t do this, but given auction properties are sold as seen, it could save you lots of money and trouble in the long run.

Buying at auction

Remember, when buying at auction you must pay a non-refundable deposit on the day of the auction and complete within 28 days. So, you need to ask any further questions you have and do your homework thoroughly beforehand. Buying at auction can work out well in some instances, but there can be unforeseen pitfalls. If you want to invest in property, there are alternatives; you could invest in a fund or investment house that dedicates some of their resources to property. That way you won’t be depending on one particular property for a return but will be spreading your funds across a range of different assets and asset classes, giving you a better chance of success.

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