Bargains are easier to come by at auctions as the number of repossessed properties shoots up says Chris Baguley, Director of Auction Finance Limited

In tough times property auctions present opportunities for professional investors but you must be armed with knowledge before you invest in 'repo property' in 2012.

Sharp investors are making handsome returns by being adept at buying these 'repo' properties. After all, lenders are keen to sell the property at the best achievable price which can often be as much as 60 per cent less than the mortgagor originally paid. Add to this the fact that the less experienced investors have left the market due to tougher access to finance and less of an appetite for repossessions - it's a perfect platform for the experienced property investor to excel.

In terms of residential properties more than twenty per cent of all lots offered at property auctions are repossessions. The high street banks want speedy sales and investors want to grasp opportunities. The auction rooms are perfect for this type of property - if you know what you're doing.

It's likely that more repossessed properties will be sold this year than last, if interest rates creep up and many of the high street banks have yet to release their repossessed properties on to the market.

Buy to let investors who do their research can find properties that achieve strong yields and make excellent long term investments. This is especially true of properties in city locations where rental values have increased quicker than out of town properties, climbing on average by £131 a week (or £524 a month) over the past decade.

To get a successful deal on a repossessed property you need two core ingredients at your fingertips - finance and information.

Specific information

You need specific information about the property itself and general information about the state of the market in order to make an informed choice about a repossessed property. Remember the principal of caveat emptor (buyer beware) is highlighted in these types of purchases more than any other.

Viewing the property ahead of the auction is essential. Do not be tempted to buy a sight unseen and insist on a thorough internal and external inspection. Repossessed properties tend to need more redevelopment than others sold at auction. There is a chance the property has had unwanted tenants- i.e., squatters- and there may be structural problems or damp issues.

You'll need to satisfy yourself with exactly what state the property is in and what the purchase includes. Making absolutely certain you are buying with vacant possession is essential, as it could take weeks to evict squatters.

Sometimes, on half developed properties, unpaid suppliers have removed items such as kitchen units and radiators in a bid to salvage something back. You need to make sure that your funds cover the cost of replacing these items.

The auctioneer will never announce that the property up for sale is a 'repo'. The way to spot these properties at auction is to see if these are labelled 'mortgagee in possession' 'on the instruction of the receivers' / 'by order of the mortgagees' on the lot. This means that the bank or lender is now resorting to the auction to generate the 'best available price' on the day, in that room.

It is recommended to get a survey on the property. You will lose your survey fees if your bid is not successful, but don't be tempted to cut corners even if you're an experienced investor. It could be an expensive mistake.

General information

People who associate repossessed properties at auction with older properties are mistaken; it's a shame because auction rooms are where you will find former new builds at ridiculously low prices, sometimes at half of their original asking price.

The same goes for terraced properties of any age. Auction Finance Limited lent more than £8m for the purchase of terraced properties last year, an increase of 22 per cent on the previous year, proving them to be a popular choice.

Finance

The reserve price on the lot is often very low which tempts more people into bidding. The financial key to success for investors is buying properties at the right level. The yield is the biggest influencer of this. If it stacks up on yield it will sell and if not, the yield will dictate the future value of the asset.

If your bid is successful, you are legally bound to purchase the property and must exchange on the day. Never bid on a property at auction unless you are certain you can get the funding quickly and complete within 28 days. Having the finance ready is essential and helps you get the best opportunity on the day.

Many investors at auction use bridging finance while they arrange longer term finance with a traditional lender.

If you're letting out the property after you've developed it then you need to factor in the redevelopment costs, stamp duty and other things such as income tax changes to your circumstances upon receipt of extra rental income - especially if you're planning on buying more than one property in one go.

It's a good idea to keep your accountant and any other professional business advisers abreast of your activity.

Top five tips

1) View the property
2) Have finance ready to complete the deal within 28 days
3) Arrange the paperwork in good time
4) Have the deposit (usually 10 per cent) in hand
5) Bid within your budget!

Chris Baguley Director at specialist lender Auction Finance Limited that provides funding for auction purchases across the UK. The company lent more than £17m to buyers in 2011 in more than 200 transactions, a 34 per cent increase on 2010. Loan sizes vary between £25,000 to more than £1m, averaging at £74,500. www.auctionfinance.co.uk

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