Buying Repossession Properties – 5 Things to Consider

Buying Repossession properties often look like a bargain at first glance. In an auction catalogue they may have a guide price some 30% below their true market value but this doesn’t necessarily make them a great buy. A lot of repossession properties do have problems, and it is the money, time and effort needed to fix these problems that you need to think about before going along to the auction.

1. Condition of the property

 If a property has been repossessed by the mortgage lender then there’s a good chance it hasn’t been looked after as well as it could have been. After all, if the owners didn’t have the money to pay the mortgage they probably won’t have had the money to modernise and redecorate. Some owners will even strip the property of all fixtures and fittings prior to repossession.

You need to view the repossession properties you’re interested in from an investor’s viewpoint and not a personal one. How much will it cost to get the property to a rentable condition? How much time will it take? Can you do the work yourself or will you need to hire builders, electricians and decorators? Try to work out the cost of the refurbishment and compare that to the estimated saving you’ll make by purchasing at auction.

2. The Rental Market

To ensure repossession properties are worth their purchase price they not only have to be in a rentable condition, they have to be in a sought-after area with only a few similar properties available to let. If there are hundreds of other properties in the area that are also available to let you might want to ask yourself why these properties haven’t been snapped up and what are the chances you will quickly find a tenant for yours.

3. Unpaid Debts

Occasionally homeowners that know they are going to have their property repossessed leave before the repossession order is made, and in these cases they often leave unpaid debts registered at the address. It can take a lot of time and effort to explain to debtors that you have purchased the house and the debts are not yours, especially if you have to wait for the debtors to get in touch before you can find out who they are.  You may also find that your property is blacklisted until the problems are resolved.

4. Possibility of the Sale Falling Through

Repossession properties sold at auction are often left on the open market by the mortgage lender right up until the contracts are signed and exchanged. This means that anyone with a higher offer can gazump you at any time. If this happens you stand to lose solicitors fees, survey fees and maybe even your arrangement fee if you are using a buy to let mortgage as finance.

5. Sitting Tenants

If the repossession property you want to buy is being sold by a struggling buy to let landlord it might have tenants already in-situ. While this doesn’t sound like a problem, it could mean you have to accept the rental amount they pay in accordance with their tenancy agreement for a set number of months, and this could be much less than you have to pay in mortgage payments. You need to research landlord law regarding sitting tenants before buying and make sure you don’t end up paying money out rather than making a profit.