Buying at Auction, with short term finance

Auction purchases can be a great way of buying properties at a discount and potentially achieving quick equity growth. Typically, a property will be listed via an auction because it may be uninhabitable (think no kitchen or bathroom) or it may be that the vendors need to realise sale funds quickly and are prepared to sell the property at below market value. Buyers typically exchange contracts and pay their deposit at the auction with a requirement to complete within 3-4 weeks. The condition of the property, and the timescales required, often rule out using an ordinary mortgage.

A recent example from one of our lenders, United Trust Bank, revolved around two brothers.  They had received a cash inheritance and had decided to use it to launch careers in property investment. Both were tradesmen and having completed many refurbishments for clients, they were keen to find a property they could refurbish themselves and sell on for a profit.

They visited several auctions to gain an understanding of the process and after some solid research on a particular area, decided to bid for a semi-detached house that had been left empty for a number of years and fallen into minor disrepair. They first went through the legal pack and confirmed there were no serious underlying issues with the property. Then, after running the bridging finance numbers ahead of the auction, they successfully secured the house and paid their 10% deposit with some of their inheritance.

The auction house required the sale to be completed within 4 weeks and after a quick valuation, the brothers were able to draw the bridging facility to complete the purchase well before the deadline. The brothers had the funds to complete the intended refurbishment works.

Although light in nature, the improvement works were designed to bring the property up to an excellent standard. The works were completed quickly and within budget.

The short term bridging finance enabled the brothers to acquire an uninhabitable property within a tight deadline. In addition, the typical 12 month term, gave them time to complete the works and properly market the property to achieve their desired selling price and a successful start to their property investment career.

Such an example is not unusual and is one that can be reviewed by a number of specialist lenders.  But as always, seek professional advice and review all options available to you.