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If you are buying an undervalued property that you will develop, you will need to understand what work you need to have carried out and what it will cost ahead of the auction. You'll also need to make sure you're aware of any issues or challenges you'll need to fix. This might include working with surveyors, architects, developers, builders and other parties, who will give input and advice on what the work will cost. You'll need to pay upfront for these parties to carry out this part of the project, and there is a risk because you can end up out of pocket having undertaken exploratory work if you don't win the bid. That said, it's important work to undertake, and your ability to get an auction bridging loan that covers the cost of the property and the development will depend on these plans
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Understand upfront what you will need to pay for a deposit. 10% is the minimum you'll need to provide, but the reality is that this figure can vary quite significantly. You shouldn't assume 10% is what you'll be asked to pay as a deposit without getting more personalised advice based on what you want to do with the property. Deposits can easily be higher if you want to develop the property significantly or if it isn't in good shape and needs lots of work. Past legal challenges or substantial problems with the property that are workable but present significant challenges you'll need to overcome can also increase what you'll need to pay as a deposit. We can help you understand what you'll be asked to pay for a deposit and why and give you a better picture of what finance you can get and what you'll need to put forward yourself
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Understanding the value of the property you want to purchase and what you can afford is key. Bidding on property or land at auction is exciting, especially when an auction presents an opportunity to acquire more property for your portfolio or get great returns on investment by purchasing undervalued real estate. That said, it's easy to get swept up in the auction and try to win the bid at any price, and you can end up paying more than the property is worth or stretching yourself. In principle offers are essential when it comes to auctions because you will have a clear idea of what you can borrow and what it will cost you to do so. If you have overbid, an auction finance bridging loan won't cover the additional amount you need to finance, so it's important to have a firm idea in your mind of what the most you can afford and what that translates to as a bid
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You also need to be realistic about the property you are buying, any problems it has, and what your auction bridging loan will cover if you want to do work to it. Some property is sold at auction because sellers want or need to dispose of it quickly or because an auction presents an opportunity for sellers (usually for lucrative mixed-use and commercial properties). In these cases, the property might be standard and won't require much work. In other cases, a property might have challenges you will need to handle. It might be legal wrangles, a short leasehold, it's unmortgageable, it requires a lot of work, or there's something 'wrong' with it. Usually, these problems are fixable when you have enough capital and time to invest in the project. Still, you need to know how you will tackle them, what it will cost you to sort out and – most importantly – ensure that you can solve the challenges, either alone or with a specialist team
