OK, so you’re going to attend a UK property sale auction and you think you’re prepared. You’ve done your price research and are ready to buy. Perhaps you’ve even attended an auction or two to get a feel for how the property auction process works. Read on to discover some issues you may have missed, especially if you want to buy a property to let out.
Some Background on Buying a Repossessed Property
There’s no doubt that property sale auctions are great places to find a bargain. In 2008, between June and August, almost 4000 houses were sold at auction. The average price of these houses was about £130,400. In the same period in 2007, the average price of properties for sale was about £170,000. While this is a discouraging trend for sellers, it’s great news for those who buy auction properties. David Sandeman is the managing director of Essential Information Group, a company that provides auction information. He says “Repossessions are now making up over 20% of the properties on sale at auction. Banks and lenders offering repossessed properties are often keen to secure a sale on the day and are less worried about achieving a high price. As a result these properties are selling extremely well compared to other lots, with investors bagging some excellent deals.”
Types of Properties; Tenants Like
So, what’s the best way to participate in a repossessed property sale? Well, first you should try to think like a tenant when buying property. Since many tenants don’t have cars, they’ll have to use public transport. Be sure that it’s easily accessible from the property you’re considering. Shopping venues should also be available nearby, especially grocery stores and meat and produce markets. Another factor that will make your property attractive to tenants is proximity to a hospital. You should also try to choose a location that will give you a ready supply of tenants, such as a venue close to a university or factory district. In a university district, for example, almost 90% of landlords experience high demand for their properties.
Incidental Costs Can Mount Up
Besides the mortgage and survey costs, you can expect to incur legal fees, insurance premiums, operation costs and costs for any repairs you may need to make. Also, the auction house may charge a buyer’s fee that can be as high at £500. Remember if the property’s price is between £175,000 and £250,000, you’ll be required to pay a 1% stamp duty that will rise to 3% or 4% in 2009, depending on the selling price of the property for sale by auction.
Know the Tax Issues
Although you’ll have to pay tax on a property that you’re letting out, there are some bright spots. You should be able to deduct the mortgage interest from your rental income. Although you cannot deduct capital improvements, you can deduct operational expenses like repairs. If you incur any legal costs or costs associated with using a solicitor or letting agent, the good news is that they are deductible along with insurance, ground rent and utility bills.
With all this in mind, a UK property auction for sale is still an excellent place to find affordable rental or rent-to-buy properties.