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Martin's Blog 02/04/12- The Risks of Buying Blind
When looking through auction catalogues, it can be easy to be seduced by the seemingly 'give away' guide prices of some of the properties featured. Particularly in today's market where there are plenty of repossessions entering the auction rooms, there can often be properties up for auction where the guide price seems a real steal. However, before getting carried away about the possibility of snapping up a real bargain, you should ask yourself why the property is being listed with such a low guide price and as always, DO YOUR RESEARCH! Don't go just on price alone. If the price seems too good to be true - then it probably is!!
I am always bleeting on about the fact that anyone, however experienced and knowledgable about an area, that is considering buying a property at auction, should visit the property and get appropriate advice. Otherwise, what seems to be an absolute bargain, could turn out to be abit of a nightmare.
Let me tell you about a property in Manchester that I came across where the buyer had 'bought blind' and was living to regret doing so.
At a guide price of £5,000 to £10,000 this 3 bed semi detached property seemed a 'no brainer' and the person who bought it only decided to bid on the lot when he was at the auction - making the decision to do so on price alone. What he didn't know (but could have easily discovered with a bit of research and a visit to the property prior to the auction) was that the property has some serious issues:
1. It was very badly fire damaged and needs total refurbishment. It is currently boarded up and you cannot currently enter the property.
2. The adjacent properties are in the same condition - fire damaged and boarded up by the council.
3. The property lies in the centre of a large local authority estate where there are lots of other vacant, burnt out and boarded up houses.
4. Within the estate, the road in which this property stands in really dodgy and people buying on the estate will prefer the nicer areas that don't cost much more.
So, all in all this impulsive 'blind' purchase wasn't the greatest decision even for an investor!
One major issue is that even if this property has the money spent on it to renovate it and make it habitable (which in this area needn't necessarily be a great deal) until the adjacent properties are also restored, their condition will have a dramatic affect on the resale value or rental value of this house. Our owner could do the works and make this property perfectly OK, yet if it is still joined to a fire damaged, boarded up house then this will have a downward impact on the price. Talk about 'Beauty and the Beast'! And given that it is highly likely that the council own the adjacent properties, there is no guarantee that these will be refurbished.
The other thorn in the side is that the property is currently uninsurable and chances are the owner wouldn't be able to insure it until it is safe.
What our buyer should have done
Firstly, he should have visited the property prior to the auction. That way, even given the fact that he couldn't enter the building, he would have seen that the property was badly damaged and, more importantly, that it is surrounded by other similarly derelict properties.
A drive-by viewing would have also highlighted the fact that there were lots of other properties in desparate need of TLC in the immediate area and surely this alone would have raised alarm bells.
He could have spoken to some locals (which he did AFTER the auction) and heard that the area has problems and isn't particularly desirable. Although given the price of properties, it is popular with first time buyers, there are better areas on the estate which don't necessarily command higher prices, so even in a refurbished state, houses in this street are likely to be turned over in preference for better roads.
Had he been an out and out investor and felt that given the refurbishment costs, he could still make money on this house, he may have been better off buying the adjacent properties as well. This way he would have had some control over the resale prices.
But ultimately this is a story of the risks of buying blind and what our buyer really should have done was to keep his hands in his pockets and not to assume that a £10k house is a steal!
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