The auction market has always been a popular choice for landlords looking to acquire new properties. But with capital gains tax (CGT) allowances changing and other economic factors in play, auction deals present an even better opportunity at this particular moment in time.
The changes to CGT mean that 10 percent is deducted from most asset sales, meaning landlords can benefit from auction deals that offer a larger than normal return. This is particularly beneficial for those who are looking to add more properties to their buy-to-let portfolio as auction prices tend to be lower than the market value of similar properties.
How does it work? This blog post explains.
What are auction deals?
At auction, potential buyers gather together and bid on a property. Auctions are held by auction houses, with contracts exchanged at the end of the auction. As a few auctioneers can offer different auction deals, it’s important to do your research to find the best option for you.
Why can auction deals be beneficial for landlords?
Auction deals can offer some great benefits for landlords, including:
– Ability to purchase an investment property at a lower than market value – auctioneers are able to set a reserve price which is often significantly below the market value of the property. This means landlords can purchase properties for less and make considerable savings.
– Reduced competition – auction deals can provide the opportunity to purchase properties with limited competition compared to the property market. This means landlords may be in a better position to secure a good auction deal.
– Speed – auction deals are concluded relatively quickly, as contracts are exchanged at the end of auction day. This makes it ideal for landlords who are looking to buy quickly and get started with their investment.
– Variety – auctioneers can offer a variety of different auction deals, so there is plenty of choice for landlords. This helps them find the right auction deal that best meets their needs.
What should landlords consider when buying an auction deal?
Before considering auction deals, landlords should weigh up all their options and do the necessary research. They should consider:
– How much they can afford to spend: auction deals come with a reserve price which will need to be taken into account when budgeting.
– The location of the property: auctioneers often offer properties in a variety of locations and landlords should take the time to check out the local area, its amenities, transport links and other attractions.
– The condition of the property: auctioneers may not provide any information on the condition of a property so it’s important for landlords to arrange a survey prior to auction day.
– The type of auction deal: auctioneers can offer different auction deals such as no reserve, private treaty and sealed bid auctions. Landlords should research the different types to find out which is best suited to their needs.
Now is a great time for landlords looking to purchase auction deals as capital gains tax allowances are changing and there are some great opportunities available in the auction market. With some careful research and a bit of luck, landlords can benefit from auction deals that offer great returns.
What are the pros of selling a property at auction?
- Quick payment: if a legally binding contract is created when the hammer falls, the buyer will have to pay a 10% deposit on the day and the remaining amount within 28 days.
- Chain-free: selling at auction means you won’t be slowed down by other parties, which can be particularly tricky if you’re in the middle of a property chain.
- Seller stays in control: the sale price is the final price; it cannot be renegotiated. When selling through an agent, the price isn’t guaranteed until the exchange of contracts.
- Buyers love projects: if your property needs major renovation work and you don’t want to spend thousands on it, then auctions could be the place to go, as they commonly attract buyers in search of big projects.
- Can cut your ties with a loss-making property: due to the ease of selling at auction, if you’re struggling to shift a property, it could be prime time to list it for auction – its sale price could surprise you. Do bear in mind you’re legally required to be honest about any serious problems you’re aware of.
Why do auction properties offer lower prices?
Auction properties are often offered at lower prices than their market value because auctioneers have the ability to set a reserve price. This is the minimum bid amount which must be met in order for the auction to go ahead. The auctioneer can also set a higher or lower reserve depending on the property’s condition and other factors, which can contribute to auction properties being offered at lower prices.
Landlords can benefit from auction properties as the savings made on auction day can be used to fund refurbishment works or for other investments. With auction deals offering a great way to add more properties to your portfolio, now is the time to take advantage of these low costs.
Auction deals are a great way for landlords to purchase properties at lower than market value rates. With careful research and planning, they can benefit from auction properties with reduced competition and speedier completion times.
Now is the perfect time to take advantage of these wonderful opportunities to make more return on your investments.
Why capital gains tax allowances mean advantages for landlords
Capital gains tax allowances are changing, which may have benefits for landlords. Under the current system, landlords can benefit from an indexation allowance when calculating their capital gains tax liability on auction properties.
This allowance allows landlords to make deductions from the sale of auction property and reduces their overall capital gains tax liability.
By taking advantage of the current capital gains tax allowances, landlords can benefit from auction deals with lower prices and increased returns. With these changes in place, now is a great time for landlords to look for auction deal opportunities.
Auction deals offer tremendous potential for landlords seeking to add more properties to their portfolio quickly and easily. With reduced competition, lower prices and a range of auction deals available, now is the perfect time to take advantage of auction deals and make more return on investments.
What does the current buy to let market mean for auctions?
Auction house My Auction claims that some landlords are willing to sell for 25 to 30 per cent less than they might have sold for before, to leave quickly.
38% of their auction properties are a result of buy to let property investors leaving the market.
The firm says that ironically some landlords wanting to expand their portfolios may benefit from the cheaper prices of properties from other landlords wanting out.
“The interest rate rises have solidified and sped up the mass exodus of buy-to-let investors from the market. However, other contributing factors, such as the consistent changes in legislation and taxation surrounding landlords in this section of the market, have made it almost unviable for some landlords to retain their investment properties” explains Stuart Collar-Brown, co-founder and director of My Auction.
“Landlords who are cash rich have the added benefit of not being reliant on mortgage rate increases, so we are seeing many making lower offers due to their ability to transact very quickly in a falling market.”
Jane Earley, from Robinson Reade in Southampton said, “interest rates are causing concern with some buyers which is slowing the market, however, historically they are not high. I would now expect to see an easing into a bit of normality and for the feeding frenzy to ease.”
David Votta, Kent-based ARLA Propertymark president sheds some light on his views surrounding government interpretation adding, “the UK Government wants to improve standards for tenants and continues to use a minority of rogue landlords and agents across the country as their benchmark, but in reality, the average standard of property is so high now. The demand for private rented homes is through the roof and since 2017, the sector has lost 230,000 landlords which has been a consequence of the Governments intervention with legislation.”
“This worries me greatly,” Spencer added. “We need landlords as a society and governments seem to have done a brilliant job in disincentivising investment which is being seen on the ground creating less choice for tenants and higher prices.”
As a result of the increase in auction properties, it means the finding properties at significant below market value (BMW) is more common.
What does the current auction market mean for property investors?
The current auction market provides a huge opportunity for property investors, with an increased number of new properties available and many at discounted cost.
One auction house has reported that 38% of its lots are from buy-to-let investors.
Data from estate agency Hamptons shows how landlords have driven up auction sales in recent months.
The share of rental homes in auction catalogues more than doubled from July 2022 to January 2023, rising from 13% to 29%.
Hamptons data also shows there has been a shift in the type of property going under the hammer. Houses now make up 76% of properties sold by investors at auction, outweighing the number of flats.
Touchstone Education founder Paul Smith said: “The current auction market offers a huge amount of choice of properties for investors and many are at a price below market value. This provides a great opportunity for investors to create significant mark-up on a profit. However, new buy to let regulation need to be taken into consideration, but many property strategies can be benefitted from as a result of auction sales.”
Wealth Through Property is the UK’s leading 2-day property investment course. It is designed to provide you with specialist knowledge of proven investor strategies. Learn how to get started and build your property portfolio and gain real-world advice.
To find out more information about the property investment courses we offer call us on 01302 897131 or email email@example.com.