Should I stay away from auction property with existing tenants?

by Readers Question

10:02 AM, 31st July 2019
About 3 weeks ago

Should I stay away from auction property with existing tenants?

Make Text Bigger
Should I stay away from auction property with existing tenants?

I’m seeing quite few auction properties at the moment that are really interesting which are being sold with with tenants on a rolling AST. The properties look good (some even have internal photos which suggest at least access can be gained) but all the advice I’ve read says stay away from these at all costs.

I bought a tenanted property through an estate agent several years ago and had no problems so I’m confused.

Can anyone offer some advice about buying this type of property at auction.

Many thanks

John



Comments

Ian Narbeth

11:05 AM, 31st July 2019
About 3 weeks ago

Hi John
When buying at auction it is best if you are buying for cash. If you need mortgage finance to complete on a residential purchase, my advice is don't buy at auction. Auctions are where the problem properties are sold and where contract terms throw risks onto the buyer. In the case of tenanted properties subject to ASTs you could inherit a pile of problems. You may also find that you are required to indemnify the seller against any claims the tenants have against him?
Does the sales pack (and you need to check on the morning of the auction that it has not been amended/added to) contain all relevant information? Are the ASTs properly signed. Are any guarantees valid? Does the guarantee relate to an earlier tenancy with the same tenant. Has the AST been varied? Have rents been paid on time? Have all necessary checks been carried out. In my experience it is rare that sellers at auction have this information in good order.

Unless you have a survey done, does the property comply with statutory requirements? With building regs, planning consents?

If the landlord did not serve the Gas Safety Certificate before the tenants took occupation you will not be able to serve a s21 notice to get them out. If a deposit was not properly protected and the PI properly signed and served you will not be able to serve a s21 notice.
Unless you are an experienced investor and buying without a mortgage I would steer clear. Buy by private treaty or buy a property with vacant possession.

Ross Tulloch

11:06 AM, 31st July 2019
About 3 weeks ago

The key for me when I bought such at auction was to get in the flats and see the tenants. 28 people viewed the property, actually 5 flats (3 derelict) but I went back and charmed my way in to look at the occupied flats and speak to the tenants. Essential. I knew what I was bidding for

Alistair Trippett

11:32 AM, 31st July 2019
About 3 weeks ago

To put a spin on the above comment, I recently purchased a block of 24 flats at auction with tenants in situ and I have found many positives as a result of buying with tenants in situ, not many necessarily relating to the auction element however but still worth considering.

Note, chasing deposits from the previous management company was a nightmare. It took over 5 months and many threats, the deposits were always insured but they had used an insurance scheme, thus getting the funds transferred was more difficult as they weren't playing ball.
I also had to pay all arrears to the previous owner, good luck finding out what that amounts to when going to auction, the agents won't talk to you until you've bought it.

Some positives, you get an income from day one hopefully, this means I've been able to refurbish flats as they become vacant and the rent roll has easily cash flowed this.

Tenants in situ opens the doors to funding, especially if they're low income, unemployed or disabled. I'm looking at around 50% funding towards a £350,000 refurb. Bare in mind also this 2 year refurb, the remaining 50% can be funded by the rent collected.

I'll definitely be looking to buy more tenanted properties.

john glynn

13:09 PM, 31st July 2019
About 3 weeks ago

Reply to the comment left by Ian Narbeth at 31/07/2019 - 11:05
Hi Ian and thank you for taking the time to reply. I would be a cash buyer. I've had BTL's in the past and have experienced the usual problems - rent arrears, disruptive tenants, damage to my property etc. but had better luck going into the holiday let business. I'm a firm believer in Caveat Emptor and my main concerns are how much truthful info the seller/auctioneers provide. The legal packs aren't available yet but when they are I think it'd be best to run them by a solicitor. Kind regards,
John.

john glynn

13:13 PM, 31st July 2019
About 3 weeks ago

Reply to the comment left by Alistair Trippett at 31/07/2019 - 11:32
Hi Alistair, Thanks for taking the time to reply and again all good advice. It was nice though to read a somewhat positive slant on buying tenanted property at auction. Although I am always naturally cautious I can't help but think there must be some real gems out there or else no-one would buy them. I shall certainly take on board what you say. Regards,
John.

Michael Skinner

15:37 PM, 1st August 2019
About 2 weeks ago

Hi John
I am a senior citizen and a landlord. I am now retiring from the business and intend to sell my existing portfolio of rental properties.
If you are looking to buy tenanted properties, you may like to contact me, when I will be able to provide the full details.
Regards
Michael

fruitfulhands

8:35 AM, 3rd August 2019
About 2 weeks ago

Reply to the comment left by Michael Skinner at 01/08/2019 - 15:37
Hello Michael
Ive read your comment with interest
I would be interested in looking at your portfolio and helping you sell in a way to minimize CGT
You can contact me on fruitfulhands@yahoo.com


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Landlord points that should have been included by Panorama

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More