In today’s episode, David discusses buying property, sourcing property, and property auctions. Wouldn’t it be great to know all the pitfalls and problems that come with buying property at auctions? Most people will commit the classic school-boy errors. But how do we avoid them? How do we keep our investment safe? You definitely have to factor in a lot of things. But no worries, David discusses them all in today’s episode of the Property Sourcing Profits Podcast. Stay tuned.

KEY TAKEAWAYS

Pre-auction. Go online and register 2 or 3 weeks before an auction. Big auction houses publish their catalogue online. Download it and browse throughout. You have to be available during viewing dates. It is possible that there will be a lot of viewers of the property. Do not be intimidated. Not everyone will go to the auction hall. There will be only a few people bidding; they are your real competition.

Download the legal pack in the auction pack. Take a look at the legal pack. It will contain everything that you need to know about the legality of the property, the risk, threats, problems, etc. You may not fully digest everything in the legal pack. You should show it to a solicitor to make sure that you do not waste money. Showing it to a solicitor is an investment.

Preparation for the Sale. Now, you got to look at the numbers. The numbers are different depending on geography. Your target is 20% net profit. So if the property is 100,000 pounds, then there should be a 20,000 pounds net profit. Over time when you are buying a property to flip, then your highest bid can be no more than 60 pence in the pound of the final refurbished value of the property. If you pay any more than this, then usually your margin will be on the threat and the project may not give you a decent profit. Twenty per cent return can be quite demanding wherever you are based in the UK. High-value property in the Southeast of England, then you might be tempted to move away from the 60% to pence pound rule… Be very realistic and be careful with figures. You have to have figures for 3 possible outcomes.

Selling Prices. You have to have 3 different prices.  Get on the day when you sell. It what dictates your profit. First outcome. If you buy at your figure, all the refurbishment runs the plan to the penny and then you sell at your projected selling price. That would be a perfect scenario. You would secure the maximum return on your project. This is the optimistic figures. On a different scenario, the second outcome, bad news, bad everything, rainy day, gloomy day, economic decline. This is the worst day. The third outcome, base your figures that are achievable, realistic and unsurprising.  Find a number in the middle that you believe will be achieved, and then have a look to see if you have got your 20% margin. This is really important. You will soon get an idea as to whether the project will work. You have to do all 3 calculations. Never take a shortcut because you got to make sure that you got an overview of the numbers. This will keep you safe. That is the main objective here. Once you get the numbers that you need, you can work out what you bid. You will have a maximum figure. Do not exceed it. Do not be tempted. Ever. It is a poor practice. You have to be firm and disciplined. Never be emotional. Do not get suckered in. There is always another bid.

You will be introduced to the professional teams that are brought in by the auctioneer to assist prospective purchases in the room. Speak to the firms who come along to support the auction, to support the people who want to make a sale. They assist those who are not prepared.  You are going to meet solicitors, local solicitors, mortgage brokers, property insurance specialist, local bridging companies (very active in auction purchases), and the local bridging firms (They have great experience. They know a lot of people. They know a lot of things. Many are family run operations. You should speak to them. Alliances can be formed.)

How do you bid? There is no right or wrong here. Sit at the back. Watch the beginning and then you will observe that the person or people bidding become thoughtful. That is the time to join in. Psychologically you are in the right place.

BEST MOMENTS

“When you attend an auction, never sit in the front row. Always, sit or stand at the back of the room.”

“Over time when you are buying a property to flip, then your highest bid can be no more than 60 pence in the pound of the final refurbished value of the property. If you pay any more than this, then usually your margin will be on the threat and the project may not give you a decent profit.”

“You have to be very careful and be realistic on the number of figures to make sure that the deal works. Do your calculation with respect to the figures with 3 possible outcomes with each scenario.”

ABOUT THE HOST

David is a property expert with over 25 years’ experience and his own portfolio of 26 units. His current rent roll is in excess of £10k per month. He is also a partner in a Deal Sourcing and Packaging business in the North West of England and has sourced over 250 properties for investors since 2004.

In recent years he has, by necessity, had to develop an expertise in LHA strategies. This area is increasingly becoming a niche for him and he enjoys empowering other landlords by sharing the knowledge he has gained.

The ultimate purpose when sourcing properties in this sector for investors is to minimise risk while maximising profit. He has had to find answers to the challenges of Tenant Find, Management, ensuring rents are paid and the transition to Universal Credit. These are strategies he uses in his own business and also on behalf of investors. His investor clients regularly achieve annual gross yields of over 20% with high occupancy rates and voids resolved, sometimes within hours.

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