Paul Mahoney: Welcome to proper wealth with me, Paul Mahoney, the show, we discuss all things wealth creation with a focus on property. Joining me today is Daniel Owen-Parr from together and we’re talking about auctions. Welcome Daniel.
Daniel Owen-Parr: Thank you very much.
Paul Mahoney: Um, so auctions, uh, I suppose perhaps if we can start off with what they are.
Daniel Owen-Parr: Yeah. And auctions, all property auctions as we’re discussing today. Um, there, there are place where individuals can purchase properties that normally you wouldn’t find in a normal state agents. Uh, normally reason by that would be because there’s a speed that wants to sell them or there may be some slight idiosyncrasy with them. So that might be that they’ve got a problem with one part of them that you wouldn’t normally able to sell them easily. So they go to a property auction and they’re able then to see as many people in the option there to bid on it, to allow that to sell at a reasonable price to get it waived. normally that done within 28 days, once, once can be purchase something.
Paul Mahoney: So it’s usually about about speed sale, whether that be they needed to happen quickly or there’s something wrong with it so it can’t go down.
Daniel Owen-Parr: Yeah, there’s, there’s not, there’s normally something, uh, you know, a lot of it is standard properties that are being sold at, but then we’ll have slight tissues somewhere along the lines. So I know we’ll come a little a bit later in some of the rules about making sure before you go to an auction. But yeah, you really need to people where what you’re actually buying when they go to there.
Paul Mahoney: And so, so you mentioned potentially having something different or wrong with the properties that might make them go to auction. What’s some examples of that? You know, what are the potential reasons that properties would be an option?
Daniel Owen-Parr: One of them, it could have been, um, taken back by a lender, right? Possibly. Um, so, uh, that is a reason why a lender would put it into an auction to sell it quickly to, to get the money back rather than putting on a, on to process through an agent.
Paul Mahoney: And it’s a perfectly good property. Yes. Yeah, absolutely. Yeah. It’s just, it’s just for whatever reason, the lender of society to take it back, it could be the owner of the property wants to sell it and maybe because they are moving abroad or at their circumstances have changed and they want to allow themselves to get that money quickly rather than Alabama wants once again, an agent to maybe take that there for a bit longer for deceased estates go to auction, they can do, yeah, that will start, can be, uh, one of the reasons or it can be something simple as a Japanese knot weed for instance.
Daniel Owen-Parr: So, um, they’re, they’re wanting to sell that property and to get off their hands as soon as it possibly can be. And how does the whole auction process work? So normally what you would have is, uh, the property would be placed into the auction and they would have some form of catalog, either online or physical, um, which would then show people what’s, what’s being displayed or that auction. And they’re around the country. There are auctions where they may have five, six, or seven lots in there, all the way up to the very large ones in London that could be inaccessible. Couple of hundred lots. Okay. So people will, will look at the properties there and they can range varying different types to a small, uh, two up two down terrorist in northern England all the way to a 10 million pound commercial property in and around the end 25. Um, what they will do at that point is they will allow viewings. So, um, that will normally have somebody from the auction would go to the property, a designated time that people would have a lot rounds that property and they’ve gotten their opportunity then to, to do their due diligence as such. So maybe if they want to bring somebody who’s got property expertise valuer or surveyor or something like that can come and have a look at it at the same time and then they normally will put the legal packs online. Right. And that gives you time to view that legal pack. Um, and, uh, bring up any, um, anything that you think may be an issue with some former legal counsel and a solicitor or conveyancer?
Paul Mahoney: Right. So, so the, the, the, the potential buyer would, would want to do all of that before going to the auction as you yes.
Daniel owen-Parr: I, I would strongly recommend if I was gonna get one, one piece of advice is do your due diligence and do it again and really make sure you understand what you’re purchasing. Okay. Um, and really understands the legal pack to have any restrictions on the title. Um, if it’s a, for instance, a leasehold property, how long is the lease left on it? And so there’s a number of things that you would want to discuss with some form of legal counsel to make sure that you’re getting what you think you get to him. Because very rarely would you ever get a true bargain in something like that. Okay. There’s normally normally something that you’d need to then sort out later down the line.
Paul Mahoney: Okay. And so as a bit of a checklist, if someone’s planning to go to auction or considering it as it as an option. I suppose you mentioned about viewing the property themselves, potentially having a surveyor view the property also make sure it’s structurally sound or if it’s not, find out why not. Yeah. Um, you mentioned before about Japanese not way that might be a reason and I assume a surveyor would pick that up.
Daniel Owen-Parr: Yes. And, and the, you know, with Japanese, what really got to be really careful because a, you’re also liable if you purchase that property. If he goes onto somebody else’s land, you are then liable to actually clear that. And it can be quite invasive. So be really careful.
Paul Mahoney: Does the vendor or the auction house need to disclose things like that? They can, uh, they can disclose as much as they are aware of. Um, so for instance, if they’d been given this property by a bank or some lender to, to sell on their behalf, or it could be the local authority maybe selling it and they will have as much information as they have. But it’s that the old adage, buyer beware, right? I really must do your own deal.
Paul Mahoney: It’s, it is your own responsibility to find those things out. So, okay, well it sounds like you’d be mad not to get us to that survey done then you can.
Daniel Owen-Parr: If you, if you know about property, you can go around and see the stuff. So for an example, for me, I’m a client that I’ve seen before, the purchase of the property. Um, the air bricks were all blocked off. Um, so we walked into the property and next minute he was about four foot down. Oh, well because the, all the floorboards had rotten. Right. So because the, all, all the air bricks had been covered up because there’s no circulation. So you just got to really make sure you know what you’re doing if you don’t get a professional to come with you.
Paul Mahoney: Okay. And you mentioned about viewing the legal pack. I assume most people probably aren’t familiar with what a legal pack actually means, so perhaps having a solicitor view that as well. Yeah. Um, and so far as actually purchasing the purchasing power at the auction, um, you know, from, from a lender’s perspective, how does that process work actually getting into the position of having the money to buy?
Daniel Owen-Parr: Well, the next stage really is, is actually the auction itself and, and really you’ve got two main sorts of auctions. You’ve got the open forum auction where most people have seen on the varying different programs on television, uh, which we’ll show you that process live. And you may have a room with 5,000, 200 people and you’ll have a, a main individual sit at the top with a gavel, little sort of wooden hammer uses or she uses. And then that’s the simple thing that you’d normally see. But now with the revolution of, of digital and online, we’re seeing more and more online auctions and that’s a slightly, slightly different way of doing it with, with an online auction. And people still attend physically or not. It’s completely online, completely online. The ones that we see are completely online. So you would sign into some form of secure websites where you can normally view or see the auction actually happing again live and then you can make beds. But you can also make bids by telephone to a two and two what we’d normally call a normal auction where you’d have it in a, you know, a large room somewhere. Um, so for, for that stage you really would need to attend them on. One of my suggestions would be actually attending one prior to purchasing it.
Paul Mahoney: Okay. Just to get familiar with it.
Daniel Owen-Parr: Yes, getting familiar with it because it is, it is a, um, it’s a really quite an exciting experience when you see people bidding against each other over a property because you can, you can actually feel the tension in the room at the time and they’re in different people. You get those. And really real microcosm of, of society when you go to an auction, the auction is, they try to [inaudible] and that’s, and that’s the really interesting thing about it. When you get a really good auctioneer. No, it is quite an exciting, you know, and I’ve seen auctions myself where properties have gone for hundred thousand pound more than you’d think because two people are bidding against each other and yet everybody’s watching and the whole room sort of holding their breath and say how to, you know, I’ve been in an auction in two weeks ago and I went for a hundred grand more than, than expected. And you know, I suppose just better turns up, isn’t it? Yes. It very much on that. And you will see maybe a hundred people, we’ll go to the viewing 50 people, we’ll um, we’ll download the legal pack and you may only have five or six at the auction and maybe only in the end too, we’ll actually bid on it. But when you’ve got two people bidding against each other, that’s quite an exciting thing to say.
Paul Mahoney: And the auctioneer tends to sort of play on it.
Daniel Owen-Parr: Oh yes. Yeah. Good option. They will do that. It’s a bit of theatre around it and that’s, that’s the enjoyable part. And that’s why I say always go and see one first. So then you get to understand the atmosphere and how things are done. And if you actually speak to the auctioneer, uh, prior to the auction, then there most of them will be very, very helpful. Um, so they will talk you through that process and how you would actually do it. So, um, it’s always worth speaking to an auction.
Paul Mahoney: Yeah. Yeah. Okay. So, so, so we’ve gone back to that checklist, you know, viewing the property yourself, perhaps having a survey, getting potentially some legal advice on the legal pack, understanding the property fully from all of that and maybe talking, attending an auction as a sort of dummy run. Yes. And in speaking with the auctioneer, yeah. I think that that’s a pretty good checklist for sort of putting people in there, a strong informed position. Yeah.
Daniel Owen-Parr: So then going to buy and I think then the next stage really leading on is how you actually going to buy the property. Right. Are you going to use finance or if have you got the actual cash to purchase that?
Paul Mahoney: Yeah. Okay. And, um, what, what would be the mix between, you know, people buying cashflow or people financing auction properties?
Daniel Owen-Parr: So what we see about 70% of using cash in the marketplace, um, 30% we’ll use some sort of form the, yeah.
Paul Mahoney: Is that affected at all? Uh, geographically, you know, in different locations? Is that change?
Daniel owen-Parr: Yes, we will see more people using finance in the larger cities. So you’re Birmingham, Manchester, Leeds, London. The more outlying areas, more rural areas, you see a lot more cash being used.
Paul Mahoney: Okay. Is that mainly determined by the prices of the properties?
Daniel Owen-Parr: You will, you’ll get in prices, you know, if you’re getting properties 40, 50, 60,000 pounds, yeah. Then more people will probably want to use their own cash right once to gets higher properties, which are normally in the city areas. That’s when you would normally need some form of finance. Very few people have the cash to purchase something that stock price.
Paul Mahoney: Well, thanks Andrew. That was great. We need to go to a break. Join us after the break for more on property auction.
Speaker 1: [inaudible]
Paul Mahoney: welcome back to proper wealth with me. Paul. Mahoney, I’m joined by Daniel. Oh and Potts. And we’re talking about property auctions. So Daniel, we spoke before the break about some a checklist that people can follow when they’re thinking about going to an auction, how to put themselves in reform position and actually, you know, successfully bead I suppose. Yeah. Um, let’s talk a bit about the auction market then. Yeah. Where we currently stand. Where is the auction market at the moment? What would you say is the current state of the market or we’ve seen over a number of years. I’m a real growth in the auction markets. Um, that is sort of starting to take off slightly with the dreaded B word f this going on. Um, it is causing the sentiment to be drained out of the market a little bit. So we have seen, um, you know, the last set of figures I saw and the London market was down by about 17% year on year.
Daniel Owen-Parr: So we are seeing a reduction in number of lots and also the number of lots that come into market. The amount of actually selling has also reduced quite a lot as well. So it’s not, not over the entire country. We are seeing some of the regional auctions really doing, they’re still doing reasonably well, but they’re your smaller standard two up, two down, three bedrooms, semis or flats type market. But when it’s a larger commercial property or portfolios, there’s not as many of them coming to market. And if they are coming to the market, they don’t normally all sell for the price you expect them to do so.
Paul Mahoney: Okay. And I suppose, you know, you mentioned about the dreaded B word, but uh, look, I suppose that’s probably just people sitting on their hands for a little bit, isn’t it?
Daniel Owen-Parr: Um, not really due to anything else I would, it’s this, there’s still a healthy market out there and we’re still seeing a lot of, of people coming to vet our sales under other lenders looking for finance, um, to, to buy that property. I don’t see the changes in taxation and, and rules over the last two or three years has really died that down too much.
Paul Mahoney: Okay. All right. I suppose the, when you think of auction, do you kind of think of getting a good deal, don’t you? Is there a, is there a general understanding of how much of a good deal you might get in an auction so far as a discount or whatever that might be? Or is it sort of very much case by case.
Daniel Owen-Parr: Case by case, but you would hope to get between 10 and 20% less than you would pay on the open market normally. Um, but it depends as we taught, uh, previously, uh, how many people actually attend the auction and how much competition you’ve got with other other people bidding on it. We’ll drive that price much higher. So, uh, clever auctioneer would have as, as many people bidding up on that property. So they would set the guide price at a, at a level two to drive enough interest and enough people to come and visit it and then bid on the day. That’s what they’re trying to do. Um, if you’ve got less people in that, then it probably won’t go for the price to expect. So you mind nip it. And one of the little idiosyncrasies is around a property that’s bought in a London auction that, but it’s actually based in one of the regions. You would normally get that at a cheaper price than actually, so if you, for instance, he was a property from Manchester in the London auction, you would probably get that cheaper than if that was in Manchester.
Paul Mahoney: So you can sort of get a deal simply based upon who’s there.
Daiel Owen-Parr: Yeah. Who’s that and where the property’s based itself.
Paul Mahoney: Yeah. Okay. That’s really interesting. Um, so you mentioned before the break about people, whether they buy cash or whether they use finance. If someone was considering using finance for an auction purchase, what’s the process they need to go through to a, I suppose get the confidence they can actually get it.
Daniel Owen-Parr: Yeah. What you would normally do is you would approach a lender, um, or an intermediary of some sort looking for a decision in principle. So what that basically means is this is the property, this is what I was the guide price. So we’ll we’ll say a hundred thousand pounds, the guide price a lender would normally ask them, how much are you willing to bid up to? So he said, well, Mike pay up to 130 so we would do some form of checks on the individual around, is that property worth? So you can do either an online valuation or there are very different tools that we can give as a guide. So we’ll that will actually value up 130,000 pounds. You would do a check on the individual to make sure they can actually afford to, to make the payments on whatever the loan is. Yeah. Um, and do a just a normal credit check just to make sure. Okay. Once you’ve done that type of, of of that is all you would need to take. So you’d have some form piece of paper saying we will lend you up to x amounts if you bid up to 130,000 pound, for instance.
Paul Mahoney: Okay. All right. So it’s a mix of the loan to value of the property, the person’s affordability or serviceability and their credit record. Yes. Okay. So have you kind of ticking those boxes? You can be pretty comfortable in organizing finance and purchasing with fines. Okay. Um, what’s the minimum that someone can borrow for production?
Daniel Owen-Parr: Finance goes lend to By lender, but normally you wouldn’t see much below sort of the 26,000 pounds really. But, um, there are lenders out there that will do less than that, but averagedly most lenses go 26,000 upwards.
Paul Mahoney: Okay. And so we spoke about the loan today. What are the general learn today’s for buying an auction?
Daniel Owen-Parr: So loan to values for, for most lenders would be a residential normal youtube to downs. The standard market, you would probably go 75, 80% maximum of the actual value of the prototype.
Paul Mahoney: So if someone’s buying a hundred thousand pound flat somewhere, um, they could potentially borrow up to 75 to 80% of that.
Daniel Owen-Parr: Yep. Oh really interesting. So on the day, um, if you are lucky enough to win the property, you would normally put down another 10% of the value of the property, minimum 2000 pounds. So that’s something that the person who’s purchasing it would have to do on the day. And then you would normally have roughly 28 days. Most of them work on 28 days. There are some that are less for certain reasons and that’s why you view the v legal pack beforehand to make sure you understand, is it seven days in 14 is a 28.
Paul Mahoney: And uh, so, so let’s say I went to the auction, I bought that a hundred thousand pound property. I put down my 10 grand as a deposit and planning to borrow 75% or 75,000 pounds. Um, I’m then committed to buying that property anti once I put down my deposit.
Daniel Owen-Parr: So when you bid on it, when the auctioneer hits the garb on on the table, you’ve then exchanged contracts, right? So it’s a legally binding. So you then have, we’ll say 28 days, which the average two to complete that transaction. And now there are, um, you are allowed to go 10 days further over that, which you can be charged interest on. But once you reach that at the end of that 10th day, then they can withdraw that contract and then they can sue you for what’s called deficit of sale. So you bought it for a hundred thousand pounds, they put it in the next option and only get 80 for instance. You can be then sued for that 20,000 difference between it. So it’s imperative. You’ve know you’ve got funding or you have the cash right for when you actually.
Paul Mahoney: I suppose it’s quite sensible then to get that decision yet principle prior and then moved quite quickly. Yes, within 38 days.
Daniel Owen-Parr: Oh is that right at, well you’ve got the 28 days, but yeah, you’re right. You don’t particularly want to go into that. There are 10 days extra in the back of that, but they’re there just in case for whatever reason. If something is thrown up within the actual transaction that you weren’t aware of, of the staff. And it does happen from time to time, but you really want to complete. So you want to lend the who you’re confident with that will allow you to complete within 28 days. And you also need a good solicitor who is able to do that type of work because it’s very different from your standard bank lending where you normally can have months to actually complete the transaction. You’ve got days because when you think about it is actually 20 working days, not 28 days because the weekend stuff. So you’ve got 20 days, 20 days to complete on. So he’s asked to be very, very quick. Yes. Okay. And I assume lenders are equipped to do that within that to the 20 day period.
Paul Mahoney: Okay, great. We’ll look. I think we’ve, we’ve covered quite a lot there so far as a checklist. I’m happy we can go get getting financed. A little example there of what I’m someone could look to do. Um, have you got some case studies, you know, perhaps some real life examples of where auctions have worked quite well for people?
Daniel Owen-Parr: Yes. Um, what you see when you go to an auction is a lot of standard properties, but you do now from time to time get some, some really quirky properties. So we’ve seen where, um, we have funded an individually bought a form of public toilet. Okay. Is, it was, it was fascinating to see because how do you value a form of public toilet? But, um, yes, we’ve, we’ve lent against a former public toilets, um, just out of interest. What did they do with it? Well, we’ve done it twice now. One of them were turned into a bar. Um, and another one was turned into a sort of retail shop called the Lou.
Daniel owen-Parr: Um, I don’t actually what it’s called, but, so yeah, but it can be something like a public toilet. It can be pieces of lands where we’ve seen individuals who want to develop their own property for instance, and build on you sort of bit of a live stream. Yeah. All the way through to developing a number of properties on there, um, as a, as a normal developer would do. So yeah. Their properties like that. Yes. You get your standard properties. So, um, you can have, um, a property, say in whole, for instance, where it’s worth 120,000 pounds, we’ve lent 80 thousands to help them purchase it. Yeah. And within that, what they’re doing is they’re building a portfolio, um, because they’re looking for rental income rather than actual capital growth. Yep. Because the properties are relatively cheap in compared to the nationwide value of property. And you still getting, um, a good rents, you know, six, 700 pounds per month in the back of it.
Paul Mahoney: Excellent. Well, look, I found that very interesting. I think it’s a great opportunity, as I mentioned, with people that are looking to get involved in being more proactive. Yeah. It’s all we’ve got time for now though, so thanks for joining me.
Daniel Owen-Parr: No, thank you very much.
Speaker 1: [inaudible].