Houses Auctioned For 60 Per Cent Off Holds Big Surprise For Buyers
Upcoming auctions in Margate and Dover feature properties being sold for over half of the average selling price in those locations. That’s right – property investors and home buyers have a chance to buy a house just over half the average price, if they have the guts to take the risk.
The four-bedroom period semi in Margate is listed at £80,000. A £120,000 mark down from the area’s £200,000 average. While bidding for the two bedroom, end of terrace property in Dover starts at £50,000, despite an independent valuation of £133,333.
You’re probably asking yourself, “have the sellers gone mad?” Well, they haven’t.
They are selling that low because their properties come with lifetime tenants.
I know what you’re thinking. “That’s not a catch at all! If there’s a tenant, then there’s more money to be made. It’s a win-win situation then. You have to be mad to let go of a deal like this!” That’s where you’re wrong. Life-long tenants pay very little, if any, rent.
Usually, properties with life-long tenants are old homes or retirees which have been sold partly or in whole to a “home reversion company.” Lifetime investment properties are sold at a very low price, and the proceeds often times revert to the seller’s pension, but, as part of their agreement, the sellers are given the right to stay in the property, with little to no rent, for the remainder of their years. It’s only when the occupants move on to an old folk’s home or pass on when the buyer can take over the house and do whatever they want with it.
These houses were sold almost exclusively to large property investors before, but it started popping up on private auctions just recently.
Another reason why lifetime investment properties are so hard to come by is because these kinds of agreements were stopped in 1989, and replaced with “short-hold” tenancies. Recent data from Shelter, a housing charity, revealed that around 100,000 houses with these kind of terms exist at the moment.
Some people are on the hunt for these properties, because of the big discounts you get from the actual purchase price, and the potential for very large capital growth.
There are, however, cons that you need to watch out for before taking the plunge with these kind of properties:
1. Buyers have to pay in cash
Mark Harris of Savills Private Finance explained that big lenders don’t usually give out mortgages for occupied properties. That’s why buyers of properties with lifetime tenants in them need to purchase it in cash.
2. Properties sold at auctions go to the highest bidder
Remind yourself that since these properties are being sold at an auction they will, eventually, go to the person who puts on the highest bid. That is all. You can’t buy your way into the property with the help of attractive deals for the seller or with just plain passion to buy.
3. The tenant’s life expectancy
Dean Mirfin of Key Retirement Solutions shared that the biggest risk that buyers take in properties with long-term tenants is the uncertainty of a person’s life expectancy. Basically, when life-long tenants stay longer in the property, the longer it will take to realise the investment you put into the house.
Big investors leverage this risk by buying as many properties as they can, but this is very difficult for small and private investors. So before buying these types of houses be sure to compute the potential capital gain you will gain against the income you would made from buying a similar but vacant buy-to-let.
Aside from that, also consider: how many years would it take to recoup the additional upfront expense in rental payments? If this is less than the time you could reasonably expect to get access to the property.