Refurbishing Auction Property - Is It For You?
One of the simplest forms of getting that first foot on the property ladder.
There are thousands of properties for sale by auction every month, that needn't cost you a fortune to speculate.
Let me talk you through a simple process. You have in front of you an auction catalogue; glossy, full of nice looking properties and your itching to get out and become the world's biggest property tycoon.
Before you do, always use a few 'Property Purchasing Principles'.
The main points which have to be observed are as follows:
1. Choose your area carefully and do your research.
If your staying closer to home, drive around your local area and look out for the erection of new buildings; office blocks, new housing development's, new road/rail links, new shopping centres, nearby schools. This is always a good sign that will tell you immediately if your area is perhaps being regenerated, money being ploughed in by local government's, and most importantly - a sought after area for the near future.
2. Choose the location of the area carefully.
You wouldn't want to choose a location next to 'landmark eye-sores', for instance: Hideous looking pylons, water towers, derelict building sites, disused public conveniences etc. These areas will definately deter a buyer for your property - without a doubt. Steer clear!
3. View the property thoroughly.
You now have a property in mind and you attend a viewing. Take someone along that knows what to look for if you don't.
Don't be put off by a groggy looking bathroom, missing kitchen cabinet doors or broken plaster on wall's and ceiling's. This is minor and can be rectified with minimal cost. You do, however, need to worry if there are vertical cracks on the exterior faces of the property, as this is sure to be subsidence! If you do come across these sort of cracks, be sure to seek expert advice in the form of a Structural Engineer. Otherwise, move on. There are more properties to look at with less hassle.
Unless you know what your doing, stay away from structural problem properties. Ok, you might pick them up for a real bargain, but is it worth the trouble and the sleepless night's? I don't think so.
Take notes as you view each room: how many bedrooms; jot down the dimensions, check the state of the windows (do they open and close), stairs, floorboards, damp, ceilings and walls. Try and have a look in the attic; make sure you can't see daylight coming through, check rafters, signs of deteriorating under-felt, ceiling joists. I don't mean to put anyone off, but checking these few things and taking notes on room sizes is going to give you a thorough picture of what your buying and what you can sell it for after a refurb or make-over.
Remember take down notes on room sizes. I'll explain more in a minute.
4. Compare current prices.
You'll obviously know the current market price of a property near you, however, researching into it further will give you a more exact figure when you come to purchase a property at auction.
Telephone local Estate Agents. Tell them your possibly looking for a property in the Town and/or Street that you've decided to go for (The property that takes your eye in the auction catalogue), and ask them what you can expect to pay. Telephone at least 4 or 5 others and do the same. Each one will undoubtedly give you a different market value, but you can use this information to your advantage.
Say you telephone around 5 agents - add up these 5 different market values and divide them into 5, for example:
Estate Agent 1 - Curent market value = £53,000.
Estate Agent 2 - Curent market value = £57,000.
Estate Agent 3 - Curent market value = £55,500.
Estate Agent 4 - Curent market value = £54,750.
Estate Agent 5 - Curent market value = £56,000.
Total combined current market value:
£276,250 divided by 5 = £55,250. This is the figure that you will use when purchasing your property at auction. You will know that this figure is going to be the price that the property will sell for outside the auction room.
Note: By using the above example in all your auction property purchases, you won't be far wrong from a true market value. When bidding at auction you will then know if your getting a bargain or not.
The above property price, although only fictitous for the sake of an example, will probably be displayed in the auction catalogue, at around £35k-£45k just to get interested parties into the room.
Some of the properties that come up for auction will state in the catalogue, "In need of modernisation", "Requires toal refurbishment" or "Property requires upgrading". These are the ones I want you to look out for in your quest for 'Financial Freedom Through Properties'.
I mention 'Financial Freedom', because that's exactly what you can acquire if you follow these simple rules and strategies.
Ok, you've picked out a property or two from the auction catalogue, you've done your research regarding location, and you now have a price in your head that you KNOW is 99% true to current market value.
Now, read on...
Auction day!
To make a profit on this sale, you need to buy it at a reduced price. After all, the property needs a little work in the form of upgrading, refurbishment or re-decoration - so you know you'll get it a bit cheaper.
Remember, properties in 'sought-after-areas' are going to sell, some, even over the current market value. Why? Capital growth. A few months or years down the line, a buyer will see their initial purchase as a good investment.
The auction rooms are extremely competitive, everyone wants a bargain.
Now let's say you've managed to secure your chosen property for £52k and you know the current market value is £55,250 (our example above). It's not a lot of profit (£3,250) but after a little bit of a face-lift you can expect a return on investment of 20-30%. How?
Refurb and re-sell doesn't have to cost you an arm and a leg.
When prospective buyers look at properties, the No.1 selling point over all others is 'SPACE'. Gone are the day's when a high-tech kitchen or bathroom were the main selling points. Although it does contribute, it's no longer a main feature.
Families are getting bigger, and the need for an extra room will far outweigh that of an exquisite kitchen.
Earlier I asked you to take notes on room dimensions, taking room sizes etc. Why? Well, if the property you've just bought has the potential...
Can you get an extra bedroom?
Can you make a 3 bed home into a 4 bed home?
If you can, you're on a winner! Remember our example property and how we worked out a current market value of £55,250? Remember, that was the house in it's current state and with the same initial amount of bedrooms.
You now have an extra bedroom (if you can build one, that is), that, along with a little bit of fresh decor and maybe a face-lift would earn you anything from an extra £15-£25k. Not to be sniffed at, I'm sure.
