Hello it’s Dr Ro, I hope you’re well. I wanted to share a property tip with you. I’m in a hotel – if you watch the video embedded in this blog post, you’ll see where I am. I’m going to be spending the weekend presenting to a whole bunch of would-be property investors, and my brain’s been buzzing with some of the questions that have come to me.
And one of the things that comes up is to do with auctions and I did get asked recently:
What are four tips that will motivate me when it comes to auctions?
Okay, so let’s start with tip number one.
A very good friend of mine, you might have seen him on TV, named Martin Roberts, is on ‘Homes under the hammer’. (If you haven’t watched it, you have to go watch it.) One of the things that I’ve heard him say many times is that you’ve got to go and see the property. Meaning you need to walk in, look round, touch it and feel it, get a sense of what that property feels like.
I have actually seen people buy properties, and they’ve actually bought property without physically going to look at it. And you might think who the heck would do that
Well, me. So in 2002 think it was, my first year or second year as a property investor, I’m at an auction in Regent Street in London. I’m there with a good friend of mine, looking to buy the property together. We looked at property in Oxfordshire. We had viewed the property, we ran the numbers on it, we knew what our limit was, and we went to the auction.
It was our first auction; we were pumped and ready to go. We walk in and our lot number comes up and we are sat there and we start to bid, and we get completely outbid by a gentleman that’s just buying it purely on emotion. He went way above the price we were prepared to pay for it.
So, we sat there thinking oh man, shit we didn’t get the property we came for. And as we are flicking through, I saw a property which was in an area that we already had some properties in. Now I think from memory it was a place called Darwin in Lancashire.
I looked at it and we thought it was so cheap for the area. It was £3900 for a property at auction and it said what rent the property was getting, which I’ll come back to in a minute.
We put a bid in and we started bidding, and we picked the property up for £6,500. A house for £6,500, I was over the moon, I was thinking yes we have just bought an amazing bargain!
We had not even been to see the property. There was one photograph of the front of the house in the actual catalogue and that was it.
When we finally got to the property having bought it (it was a 14-day completion, which I’ll come back to) we walked up and the key that we were given did not even fit the door. We went all the way around to the back and it turns out that the key did not fit the back door. So, we had to go back with a builder and a sledgehammer and literally smash the house open.
When we got in it was not as it was described. Actually the funny thing about this property was it cost us more to do the renovation than we actually bought the property for. I think we put 13 into it, we bought it for six, so we were in it for £19,000. It revalued about £27,000. So, we did make a profit, but that’s because we had a great team there already, and that’s a video for another day.
People do this now, you know. I met with Martin recently and he actually said the number of people that don’t go look at the property is crazy. You’ve got to go look around it. Because remember you’re buying an investment. If you’re buying an investment, it might be that you’re looking to buy it for your own home. But if you’re buying for an investment, there’s a lot of things you’ve got to check.
You’re looking to see is it in the right area. Imagine you’re doing it as an HMO. And you walk in and you’ve got photographs and you’ve got dimensions, but those dimensions may not be accurate, so you’ve got to check. If it’s below a certain square meterage, you won’t be able to let the rooms out. At the time I’m recording this video and writing this blog post, the requirement is 6.51sqm² for a single bedroom. If it happens that the room sizes are not adequate you’re not going to get the income or you are not going to be able to let those rooms out. There might be problems with damp, or there might be problems with the roof. There might have been a fire.
I’ve got a friend of mine that has picked up a property in Scotland as a result of there being a fire damage and nobody wanted the property, because they thought it was worse than it actually was. So, going to view the property is essential.
“But Dr Ro there are eight properties I want to look at in the catalogue and they’re an hour and a half, some are two hours from where I live.”
Go and view the properties. If you’re an investor, you’re going to have to put some skin in the game. That skin isn’t just money, it is actually time as well. So get to the house. Take a camera, take a clipboard with you, ideally take a builder with you. Look at all the situations and scenarios that could be a problem with that property.
And then you’ve got to come out of the property and you’ve got to look around the area, remember your strategy for that particular property has to fit with the area as well. The two have to match with each other.
So, that’s tip number one that should motivate you about auction properties is, it’s really good to go look at them.
Tip number two is to check the legal paperwork and I want to carry on my story about the cheap property. In the paperwork that we had with this property, it stated in the catalogue that the property was rented out for £3500 per year. Of course I thought wow, we can buy it for £3,900 (we bought it for £6,500) and the rent is £3,500 a year. That’s amazing, what a great bargain. But, the catalogue didn’t come with the legal pack.
So, tip number two is get the legal pack, you have to get the legal pack. And with the legal pack get copies. If it says it’s rented get a copy of the rental documentation i.e. you’ve got proof that there is an AST there. There was an AST with this property. However, it had been manufactured. It was fraudulent, and there were no tenants.
My big suggestion is get the paperwork. Check if there is a tenancy agreement. If there is, go and visit the tenants. I actually spoke to somebody a couple years ago. In the auction catalogue it said the rent for a whole property was £850 a month. There was even a tenancy agreement for £850 a month. But when I went to the actual property and spoke with the tenants, they told me they were paying £600 a month. So again, there was falsified information.
You’ve got to be aware of these things because ultimately you’re the person buying the property, and if you get it wrong,you’re the one that’s going to lose out. So, number two is get the legal pack and double check anything in it. There are all sorts of legal things to talk about as well, but for now we’re talking about tenancy agreements.
Tip number three actually comes from Martin Robers, Years ago, I heard him say to a few other people, “okay when you’re there and you’re bidding at an auction, bid with certainty.”
Now this is a beautiful tip. In a way, I learned this the hard way.
Martin said if you happen to be sitting in the auction room and you have chosen to sit at the front, there are different schools of thoughts about where you sit. Should you sit at the front where you’re seen to be very bold and you’re bidding? Or should you stand at the back or sit at the back where you can see what’s going on and watch other people?
Now my preference is actually to be more towards the back. But what Martin said was, if you’re sat there at the front and you happen to be with somebody and the bidding starts to go and you want to get into this now, be aware that if you show any hesitancy people will spot it. Bidding with certainty is really, really important.
The fourth tip I’m going to give you is also about being in the room, and about awareness. The auctioneer can basically guide the price. You can pay attention to signs from them for what their reserve price is. And ideally you want to wait and let the price get really close to what you’re willing to bid for. And then you take action.
A few other tips: if a property does not go under the hammer and it gets withdrawn, it can go to the back of the room. The auction is there, and you can go negotiate, you can put an offer in even though it hasn’t been concluded. In fact, you might actually find the actual seller in the room or on the phone, and they’re open to you selling.
Remember typically it’s 28 days. But what if this property was in there for 14 days? It has to be completed in 14 days. They’re distressed, you’re keen to get involved. They want a sale, you make an offer, it didn’t go in under the hammer, but you’ve managed to pick the deal up at the back of the room.
And that’s another great strategy as well.
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