Would you sell in an auction if you were me?

by Readers Question

6 years ago

Would you sell in an auction if you were me?

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Would you sell in an auction if you were me?

Readers Question - Sell in an auction?Steve wants to know from readers of Property118 whether they think, in his circumstances, he should sell his property in an auction.

Steve has very kindly given us permission to publish his email below.

“I have recently inherited a 3 bed semi from my father. The property is in need of modernisation and is in a fairly deprived former mining village in Derbyshire. As my father payed no interest in the property he has never increased the rent and the same tenants have lived there for over 10 years at the same rent (£260 per month!). I have placed the property under the management of a professional lettings agent and they have increase the rent to £320 per month but say they can’t increase it any more for a while.

My question is this. As I see no room for capital growth in this area in the foreseable future and the rent is so low I would like to sell it and wondered if you have any thoughts on the best way to do this.

If I sell at auction would it be better to use a local company ie Graham Penny or is it better to sell at a large auction house in London.

Would it be better to hang on to it for a few years and try to increase the rent to a more realistic level (I am told that the true rent should be around £385 as it stands and around £425 when renovated) in the expectation of realising a better price.

Thank you for your time.

Best regards

Steve Cook”

What would your advice to Steve be?



Comments

Mark Alexander

6 years ago

Hi Steve

I too will be interested to see what other landlords suggest.

How much do you think the property is worth?

One option you have is to raise a mortgage against it and use the rent to pay that mortgage and the associated costs. a good financial adviser will guide you through what's sensible. let me know if you would like me to refer one.

If the yield is good I'd seriously consider hanging on to it. If not, a sale may be the best way forward.

Another idea would be to ask the tenant whether he would like to have a option to buy it at some point. If he would, then a Rent to Buy scheme may be appropriate. I can happily put you in touch with a good person to provide more information and help you set that up too. it would certainly assist you with management, maintenance and an exit strategy.

There are several options, knowing how much you would expect the property to sell for in it's current condition would be really helpful information.

6 years ago

The most important consideration/question is: what will you do with the money?

i.e. sell if you intend to reinvest/spend money on yourself. Keep the property and slowly manage the investment better over time, if you are financially stable and not too fussed about reinvestment.

Obviously you could employ the cash better now to achieve better yield/capital growth prospects in another property/area.

By asking the question here, you obviously want to be proactive, in which case seek advice as to whether this house would be better sold as an investment or for an owner-occupier. If better as an investment, London auction; if as a home, private treaty (Rightmove) better for price, local auction for speed and certainty (although no guarantees).

Hope that helps.

Rayhan

6 years ago

Hi Mark
Thank you for your reply.
Its difficult to say how much it is worth as so few have sold on this street over the last 10 years, (probably because the houses are all ex mining stock and the area is fairly deprived). In its present condition I would guess that it would only sell at auction and is probably worth around £50,000 - £55,000.
The last one sold on the same street, which was in good condition, was in 2010 for around £80,000. The current tenants are in no position to buy unfortunately.
I have other 'better quality' properties which I rent out and would definately rather sell this one and use the money towards the purchase of another property.
Raising a mortgage may be an option but this would depend on the amount of equity I could expect to realise.

Mark Alexander

6 years ago

Hi Steve

If you do decide to sell at auction I'd go for a local one if I were you. I met a chap once from up north and all he ever did was buy in London auctions and immediately sell on in local auctions without even touching the properties and he was making a packet.

I don't know your financial circumstances but if you have good credit and a decent income you should be able to raise a mortgage on it of £30,000 to £40,000 if you decide to do that as opposed to selling.

I thought Rayhan made some very good points in his post too.

6 years ago

Hi Steve,
You don't give sufficient information as to your personal circumstances to offer useful advice or opinion, but my philosophy over 30 years has been to do it up and hold,particularly if the market is depressed. If you are able to manage the property yourself it is doubtful if the investment return would match that from rent income less costs, do the sums!

David Main

6 years ago

Hmm. £320pm on a £50-55k property equates to a 7% yield, give or take. What is wrong with that? If by modernisation you mean the discretionary upgrading of obsolete/old fashioned fittings rather than the essential replacement of fittings no longer fit-for-purpose then run with it; you're getting £320 a month for no initial outlay and, with a (presumably content) ten-year tenant, not much hassle either. I'd take that deal anytime!

If it were me, the time to sell would be when the tenant vacates or if the payback period on essential modernisation needed now is uneconomic in terms of the additional rent achievable.

Good luck.

6 years ago

Hello
Thank you to all of you for your comments, you have given me much to think about and it is very much appreciated.
I understand the logic in keeping the property but the problem I see is mainly the area in which it lies. Whilst other areas do have prospects for growth both in terms of capital and rental I can see no such prospects for this area and have a vision of the property being worth the same as today in perhaps 5-10 years time. This may be a little pessimistic but who knows? The neighbours are also I problem If if you know what I mean! (Who wants Christmas lights covering their house 365 days a year. Although they do only light up from early November)
Mark and Rayhan you seem to have slightly differing opinions as to the best way to sell at auction. I believe that in its current condition it is only saleable as an investment. Therefore,although I appreciate that it is not an exact science, would I perhaps be better selling in London should I go down that route?

Ian Pye

6 years ago

I would NOT have changed to a letting agent.Nearly all the etxra rent will go to the agent.You could have achieved this without the agent.
I had a similar situation, where my mother had inherited a cottage in the 60's with a tenant on a regulated tenancy on 10 shillings (50p) a week and could not increase it without the tenants permission.She used to go and collect the rent once per yr.The tenant had the right to stay there for life and he did!
I persuaded her to ask the tenant to agree to an increase to £6 per week , which he reluctantly did.This was duly registered.
In 1985 I bought it from my mother, because she knew it needed a new roof.
It was valued @ £6,000 with the tenant in situ.My mother was pleased with the £6,000. By 2000 I had managed to move the rent up to £16 per wk , with the tenants permission.
In 2007 the tenant died after living there 50 yrs.I totally renovated it replacing everything including the roof timbers and slates,even the floor had to be dug up.Total cost £54,000.
However, I sold it for £195,000.
Be patient and you should be rewarded.

6 years ago

Hello Magpye
If I had the choice I would not have used a lettings agent. Unfortunately (fortunately!?) I spend a lot of my time in Spain as I have property there also so I really need the agent and in fairness to them they have been very good so far.
I think the difference between you and me is that this property will never be worth £195,000 (not in my lifetime anyway!!)
DavyM

6 years ago

Hi DaveyM
The property needs complete renovation. New kitchen bathroom ect the 'full works'. Possibly £15 - £20,000. Then it has a large garden which is totally neglected at present. I can see the property being a burden rather than a benefit if I am not pro-active.

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