I almost feel guilty for bringing you this information. Because there’s nothing really nice about buying up repossessed property for a song. Yet at the same time I’m excited about it. Really excited. And I really do hope that you’ll find what I’m going to tell you this month interesting – and possibly very lucrative.
You see, I’ve been working as a property journalist for many years now. And I just can’t remember the last time there was such a buzz in the property market – at least from the entrepreneur’s point of view. The property market started to boom in the 1980s and by the 2000s it had become unaffordable for many. But today, in some cases, distressed prices are almost back to 1980s levels.
What you need to get started in repossessed property
Normally at this point in a blueprint we start out with a list of basic requirements. But I’m going to deviate a little from the usual rundown here about whether you need an office, laptop, blah, blah, blah, because this is not a business in the conventional sense of the word. It’s something of a guerrilla opportunity; a project you can jump in and out of as good properties present themselves. (But yes, it is an opportunity you can run (part-time from home.)
Very importantly – you will need a good dose of drive and enthusiasm. You’ll need to be able to go out and spot opportunities, plan and organise them, and have the determination to see them through.
How much money will you need? You can get started in repossessed property with or without capital of your own – I will explain how later. But if you thought this was a “big money” opportunity, that isn’t necessarily the case. The cheapest, viable repo property I have seen to date sold for just £17,000. At best, you’d need a 30% deposit to buy into such a property. So you can see that the entry level into a property opportunity might be a lot less than you imagined.
Some examples of repo deals
To give you an idea of the opportunities on offer, here are some of the cheaper repossession buys I’ve just found recently:
• One bedroom flat, Westgate On Sea, Kent. Guide price £38,000. (Neighbouring properties have sold recently for up to £72,000.)
• Two bedroom semi-detached, Bradford. Guide price £30,000. (Average house value in the same street is £49,000.)
• Two bedroom flat, Southall, Middlesex. Guide price £72,000. (There is currently nothing much else available in that area for less than £100,000.)
• Three bedroom house, Londonderry. N.Ireland. Guide price £40,000. This property sold for £98,000 three years ago.
• Three bedroom townhouse, Loughborough, Leics. Guide price £55,000. (Similar neighbouring properties have sold recently for up to £90,000.)
• One bedroom holiday flat, Torquay. Guided for £25,000, the property eventually sold at auction for £35,500.
• Two bed holiday flat, Colywn Bay, N.Wales. Sold for £30,000.
• Two bedroom townhouse, Friern Barnet, London. Sold for £120,000. (Checks show that there is little else available in the vicinity for less than £190,000.)
• Two bedroom terrace in Leeds. Sold for £27,000. (The same property last sold for £25,000… in 1989!)
Although these properties are sold now I’ll tell you about sources where you can find similar (or possibly even better) opportunities shortly.
Where are the best repo opportunities found?
This is a good tip to start with. Rather than trying to cover all the country, choose an area, or a few small areas, to focus on. Do as much research and reading on it as you can. (Sources to help with that coming up.) Get to become a potted expert in repos in that area. Then, when properties come you’ll know if they’re available for a good price… and how much you could make from them.
I should point out that, right now, you will find that most, low cost repo. deals are outside prime property areas – central London in particular. Regional towns and cities are the best places to find these opportunities.
What makes a good repo opportunity?
This is important: You need to bear in mind that not every low priced property represents a good opportunity. In some circumstances, a cheap property can actually be a poor deal.
Here are a few tips on what types of property I think represent good opportunities right now:
• Terraced houses. These are popular with first- time buyers when the market starts to move, so are often easiest to sell on later.
• Traditional flats. Such as good quality conversions of period buildings. These are always easy to sell or let.
• Two/three bedroom properties. Not too big and not too small.
• Areas with good facilities. On bus routes/near a station. Range of local shops. Decent schools in the area. These are always good to sell/let whatever the economy is doing.
• Properties with land where there is scope to add value with an extension or development.
• New builds. Properties that have been completed but not occupied. These are sometimes sold off cheaply by developers/builders.
And here are a few types of properties that might not offer such a good proposition:
• Flats in large, modern city-living developments where a sizable majority are for sale/to let.
• Properties in areas with lots and lots of “For Sale” signs. (Chances are the market is saturated.)
• Unusual properties, such as thatched cottages, converted shops, etc. Listed buildings. These can be tricky to value and tricky to sell.
• Properties in areas with a lot of social problems. Chances are they are cheap because of this, not just because they have been repossessed.
• Properties that need extensive renovation. To be frank, I’m not entirely sure about these. Although there can be a lot of scope to add value, renovation costs and timescales can be difficult to estimate if you’re not a surveyor or builder. (Put these on your “maybe” list!)
Possible pitfalls to be aware of
I think it’s only fair to point out that things are not always straightforward in repo property. These are a few things you need to be aware of: sellers who have been experiencing financial difficulties may not have had the money to maintain the property properly for some time. In a few cases, householders facing eviction have stripped or damaged the property. Sometimes they may not have been able to sell the property before repossession because of its condition, or its location. And of course, if the repo property has not been sold on the open market at its full market value how will you realise a profit? So, it’s important to plan your exit route – more about this later.
Where to find and how to buy
Here are the main methods I suggest you use to find suitable properties:
Estate agents. This is the easiest method. (But because it is easy it is also the one most often used by other people looking to buy repo property – so there will most likely be competition.)
It is worth registering with all the estate agents in the area in question. But note – most repossessions are handled by large estate agency chains rather than independent agents. (Sellers of repo property often pay minimum commission so it is often not cost- effective for smaller agents to handle them.)
Ask the agents to send you details of repossession properties within your budget as they come in – although not all will do this.
Most importantly, do some detective work of your own: My favourite website for searching for properties – because it allows you to carefully tailor your selection – is Globrix at www.globrix.com. Properties marked “guide price” and “no chain” frequently indicate repossessions.
Important to know when buying through an agent: Once an offer is made and accepted on a repo. property it will have to go ‘on notice’ for a period of (usually) 30 days. The agent will have to advertise this offer to give other purchasers a chance to make a better one. This is done in order to demonstrate that they have attempted to get the best price for the property.
So you need to be aware that, if you find a bargain, there is a risk another buyer will come in and make a better offer. Similarly, it can be well worth looking for repo properties that are advertised as being “on notice”. There may be an opportunity to jump in with a slightly improved offer and get a bargain at the last minute!
Property sourcing services. These are a relatively new arrival and a consequence of the recession. Property sourcing agents gather details of repo properties being sold from various different sources and offer them to buyers as a ready-made package. These properties can be from estate agents, banks/building societies and direct from owners. Some of these properties may already be tenanted, i.e. they are producing a rental income from day one.
Important to know when buying through property sourcing services: There may be a “finders fee” to pay when you buy these properties. Also, the prices may not be the lowest. (The idea is that they save you, the purchaser, time and research work.)
Tip. If you use this source think carefully before paying just for a LIST of repo properties. You can find out about most of the properties being offered elsewhere, for free, by doing some research.
Buying direct from seller. This is not buying repossessed property as such, but aiming to buy it BEFORE it is repossessed. Here’s what happens before a property is repossessed: The seller sometimes has the opportunity to find a buyer themselves. It is almost always better for them to do this as they may secure a better price. The advantage to the buyer is that they can access property deals other buyers can’t, i.e. before the properties are offered by an agent or at auction.
Here’s how to find these opportunities: Use Globrix and also Zoopla at www.zoopla.com (more about this later). Look for properties which have had many price reductions within a short period of time. This can often indicate what is known as a motivated seller who needs to sell.
Auctions. This is almost certainly the best way to buy repo properties and at the very best prices
Essential Information Group, a company who compile auction market data say that, currently, over 20% of all residential lots offered at property auctions are repossessions – one in five, in other words. They report that sale prices can be as low as 60% of what the owner originally paid.
To get started, track down all the auctioneers that sell property in your chosen area. Local auctioneers sometimes handle repo properties, but they are most often handled by large auction houses.
If you’d like to know which are the best very auction houses for sourcing repo property I’ve put together a special, secret, little “black book” of my favourite contacts and other useful information. If you’d like a copy you can download it here: www.canonburypublishing.com/reproproperty
Note. Auction catalogues are only usually issued around three to four weeks in advance of a sale, so you need to move quite quickly once you have identified suitable properties.
How to buy repo property at auction
You probably know how auctions work generally, but there are a few special points you need to bear in mind if you are buying property at an auction:
• A property sale made at an auction is FINAL. Completion occurs (usually) 28 days after the sale. It isn’t like a normal, private treaty sale where the sale is subject to a contract to be agreed afterwards.
• You need to have funding arranged before bidding, not after.
• You need to view the property/have a survey done and make any other checks before the auction, not after. (Ask for the legal pack before the auction from the auction house or seller’s solicitor. This will give you legal information about the property for checking by you/your solicitor.)
• Guide prices are just that – a guide. Properties can sell for much more, or sometimes even less. Attractively low guide prices can be problematic in that they attract more bargain hunters and push prices up. As with any auction, set your maximum budget and stick to it.
• You will normally need to pay a 10% non- refundable deposit when the hammer falls at the auction. (Most auctions take card payments.)
• If a property you are interested in does not reach its reserve price it will be withdrawn. But make a note of the last bid – for why, see later!
• Some auctions allow you to bid by post, phone or online. But, some expert buyers advise against buying this way, as it is difficult to judge the sentiment in the room and see if a bargain could be in the offing.
• Terms and conditions, together with the buyer’s premium/charges for buying at auction, vary from sale to sale. Ask for the auction house’s conditions of sale before attending. (Also bear in mind legal costs and any stamp duty.)
Most important. Repossessed properties sold at auction are not necessarily always a bargain. In some cases, because they attract a lot of interest from bargain hunters, they can sell for MORE than they otherwise would. Be sure to research prices thoroughly beforehand – using the methods I will suggest shortly.
Making an offer after an auction. Where a property fails to reach its reserve and goes unsold, making an offer AFTER the auction is a tactic used by some repo buyers to buy even more cheaply. This is because it may work out cheaper for the seller to sell the property for less than they initially wanted than to re-auction the property.
Make a note of the last, unsuccessful bid on a property you are interested in which fails to sell. Then make an offer to the auctioneer’s clerk. You could find that the seller accepts your offer.
How to check deals… my recommended “deal-checking” technique
This is a critical part of getting involved in repo property at the moment. You need to be able to spot suitable properties and to be able to move quickly. Because, slack though the housing market is, good repo properties will sell quickly. I’ve developed a simple deal-checking technique which you might find helpful.
You need to know about Zoopla. Zoopla.com is a property portal. It collects details of properties for sale and rent from many sources together in one place. And shows historic price information for them. (There are other similar sites, but Zoopla is my favourite for this.)
This is what I suggest you do:
1. Take your list of possible properties. Go to Zoopla. Tap in the area or postcode.
2. Find similar properties for sale. Also check the historic information at the top of the page. Check the “house prices paid” section for similar properties. This shows actual, recent selling prices achieved. You can see from this if the price of the repo property appears to represent good value or not.
3. Find similar properties for rent. See what levels of rent are being charged. Now do a rental yield check. Divide the likely annual rent by the likely selling price of the property and multiply it by 100 to find the projected rental yield as a percentage. You can see from this whether the property is likely to stack up as a rental investment. (Yields of 5%+ are attractive at the moment. Yields of 10%+ can be considered very attractive.)
Worked examples
Example 1. I found a property in Leicester, LE9.
The property is up for sale at a guide price of £150,995. Zoopla tells me that similar properties in that street are up for sale at £180,000. So, if the property sells at the guide price that would represent £29,000 below market value. Zoopla tells me that similar properties in that street rent for £595pcm. If the property sells for guide that would represent a yield of 4.7% for an investor. Possible good project!
Example 2. I found a property in Manchester M1. The property is up for sale at a guide price of £52,500. Zoopla tells me that similar properties in that street have sold recently for £80,000. If the property sells at the guide price that would represent £27,500 below market value.
Zoopla tells me that similar properties in that block rent for £550pcm. If the property sells for guide that would represent a yield of 12.5% for an investor. Possible a very good project!
Raising the finance for a repo property project
As you may know, raising finance for buying property can be tricky at the moment. The credit crunch is one reason why the property market is suffering problems, and exactly why so much repo. property is available. But this doesn’t mean funding isn’t available. You just need to be a little more creative.
Mortgage lending. If you are mortgaging or remortgaging for property purchase I would recommend that you avoid the high street banks, who are not very receptive to this type of lending right now. A much better option is to use a mortgage broker. A good broker should be able to find you the most appropriate type of mortgage both for repo property and for your circumstances. Note. Brokers may charge you a fee for advice, or for arranging a mortgage, so check this first.
You should normally expect to need a deposit of 30% of the value of your property. So, on a £30,000 repossession you would need around a £9,000 deposit.
Private loans and mortgages. You can set up a loan or mortgage agreement with anyone, not just a bank. You can have whatever interest rate and repayment term you like. Peer-to-peer lending sites like Zopa (uk.zopa.com) and Funding Circle (www.fundingcircle.com) may be useful for setting up a private loan or mortgage.
Syndicates. Another option worth considering is to set up a property investment syndicate to raise some or all of your funding. With this form of finance, you club together with other investors and buy a share in a repossessed property each. Then the profits from the project are shared in the same proportion too.
For example, if you club together with five other investors who can each raise £10,000 that could be enough to get into the market with a bargain basement repo. If, say, the property then resold for its true market value of £80,000 each investor would receive £16,000 after expenses. A simplified example perhaps, but it may be a solution when finance is hard to come by.
Running a property-finding agency
This might be an option for you if you do not have capital, or do not want to risk any capital. Indeed, some experts say this is where the property opportunities really are right now… making money by catering for cash-rich investors, rather than owner occupiers.
Wealthy investors, perhaps those abroad, are cash rich but time poor. They don’t have time to scour the estate agents and auction listings looking for good investment opportunities. So you could offer them a property sourcing service.
You can offer this service direct to landlords and investors. Contact landlords’ associations. Ask accountants, lawyers and financial advisers if they will introduce you to their wealthy clients. Advertise in property publications. Tip. If you live in a city (especially London) pitch your service at wealthy foreign investors.
Once you have found customers, here’s how this service works: Fill in a briefing form with details of what kind of properties they are looking to buy. Location? Flat or house? Price range? Rental yield required? Development potential? Now research the market and send regular reports on suitable repo opportunities as you find them.
You could charge for this service either on an hourly rate or finder’s fee based on the value of property they purchase through your service.
Exit routes… different ways to turn a profit from repo property
A very important principle in property investing is always to have an exit route. This is particularly important with repossession property. It’s no good buying a bargain if there is no way to realise the value you have created. So, before you buy have an idea what your likely exit route is.
Here are the main options to consider:
Resell the property. This is most suitable if you want a short-term capital return. It seems a strange thing to do, but many investors in repo property sell on for a better price as soon as they can get a good offer. It’s called flipping. (If you buy at auction, you can even put your property up for resale before the sale is finalised!)
The pros? You can flip the profits into another deal on more and more repo properties as long as the market lasts. You won’t have to bother about renting, rent collecting, property maintenance, etc. The cons? You won’t benefit from any long-term appreciation in the market.
If you plan to resell you must ensure that you buy at a price that is below the full open market value. You can aim to achieve this by studying recent sales prices of similar, nearby properties using Zoopla.com and so on.
Rent the property. This one is for you if you want to generate an income now. The prospects for any capital growth depend on the long-term prospects of the property market. If you are interested in this option carry out a rental yield check BEFORE you buy.
As I suggested earlier, go to a property portal like Zoopla.com. Search for property to let. Check rents. Also ask local letting agents about demand in the local area. You will be able to spot places where there’s good potential (and where there isn’t).
Most experts agree buy to let offers potential for good yields right now, as long as the location and type of property is good for letting. For example, buying a two bedroom property for £60,000 and letting it for £495 a month would produce 10% yield – better than any bank savings account. Renovate the property. This one falls into the “maybe” category! Yes, renovation has been a big money-maker over the last few years. But in the past many renovators relied on the rising market to bolster their profits. In the current market, unless it’s an exceptional bargain, you might not add much more than the cost of renovation to the value of your property. It could mean a lot of work and extra expense for little extra return. And there is an added risk factor in that the market might change, especially if your renovation project is a long one.
Tip. Look at what grants are available, which might make it more financially attractive.
Summary
So then, what do I really think about opportunities in the repo. property market right now?
Quite honestly, if you’ve always wanted to get involved in property – perhaps you missed out on previous booms – I do think now really is the time to at least consider it. Because if, as many experts believe, property markets are cyclical it might be decades before these kinds of prices and opportunities are available again.
Any project of this kind always involves a risk, of course. So I would never advise anybody to rush into property. Do your own research. As much as possible. Take expert advice. Make sure the property you are looking at represents good value. Ensure you have an exit route planned to release that value.
But that done, I do feel this is something you should keep in your headlights over the next couple of years.
PS. If you’re interested in getting started, don’t forget to download my special, secret, little “black book” of auction contacts and other useful information. It’s here: www.canonburypublishing.com/reproproperty
Buying repo property overseas
As you probably know, the property slump hasn’t just affected the UK but many other countries too. That means other countries offer repossession property opportunities too – in many cases much, much better than in the UK. I have information on repo. opportunities in countries such as the USA, Spain and Ireland.