Why Buy to Let Landlords Choose Buying Auction Properties To Make Money

The whole point of being a buy to let landlord is to make money. If you get it right the profession allows you to make a decent monthly profit without having to work excessive hours every day, but in order to do this you first need to purchase properties that generate a bigger income per month than it costs in mortgage payments. 

This is where properties bought at auction come in. Buying properties for auction prices is the first step to an impressive buy to let property portfolio. If you do your homework and research the properties for auction in your local area you will often find a good selection that can be used as a private rental property. And with a bit of luck they shouldn’t need too much work or money spending on them.

Generating a Positive Cashflow

Successful buy to let landlords know how to choose properties that will generate a positive cashflow within a month or two or their purchase. By positive cashflow we mean the difference between the rental income from the property and the total outgoings that you pay on the property each month i.e. the mortgage payment, the landlord insurance, any bills that are included in the rental amount etc. The positive cashflow is your profit.

Buying properties for auction prices is a great way to get a head start on the generation of your positive cashflow, and hence your profit. For example, let’s say a property has a market value of £150,000. If you bought the property through an estate agent in the traditional way you would need a 25-40% deposit and a buy to let mortgage for the rest.

Now let’s say you see similar value properties for auction at a price 35% lower than their market value. Even with competition you’re still going to save around 30% on the £150,000 price tag, which means you could get the auction property for just over £100,000. The result of finding such a property for auction is a saving on the deposit you need and a much smaller mortgage payment per month.

Technically speaking the auction property still has a £150,000 value and you can rent it to a tenant for a price worthy of a £150,000 property. Okay so you may have to put a few thousand pounds into modernising and redecorating the property, but your £45,000 saving on the price will easily cover this. So, you have a healthy rental income being generated and a mortgage payment around 1/3rd smaller than if you bought the property in the traditional way. This constitutes your positive cashflow and your profit.

The Added Bonus

Not only do landlords get virtually instant positive cashflow from buying properties for auction prices, they also get instant equity. Using the example above, the property bought at auction provides the buyer with £45,000 worth of equity right from the word go. This then can then used, when the terms of the buy to let mortgage allow it, as a deposit on a second investment property, again bought at auction.

The cycle continues and the property portfolio grows…and all you actually need to start is your initial property deposit which could be much less than you think by buying properties for auction prices.