House Hunter: 'I want to buy a wreck at an auction'

THE PROBLEM

THE PROBLEM

Marc Fitzgibbon writes: "I have sold my buy-to-let house in London because my rental income has fallen more than 15 per cent since 2000. Although the capital value has risen by 50 per cent, there now seems little prospect of further increases in sale value so it seems the right time to quit while on top.

"I would like to use a little of my equity to do something with a higher risk, and a higher profit. I'd like to buy a property for £100,000 to restore, then sell cheaply at auction. My aim is to renovate it for £10,000 or less, and sell it for a £50,000 to £75,000 profit. I can do most of the restoration work myself, but that means my new property would have to be in London or the South-west, where I have friends and can stay during the project.

"But the whole enterprise hinges on whether I can get a good deal at an auction. I have never been to one and frankly am very wary. How do I discover when and where they take place? Do I get a chance to view the properties? Is there a way of doing a survey ahead of the purchase so that I can be sure I buy a property that meets my need?"

THE ADVICE

Graham Norwood writes: "Becoming an amateur developer is ambitious but auctions are the right places to find homes in need to renovation. Sellers are often advised to choose auctions over estate agents if they need a quick sale, or because a property has problems and can sell only at below-market price, or because a property is ugly (like a flat above a shop) and will not sell easily in the beauty parade of homes in an estate agent's window.

Auctions do occasionally generate fevered bidding but most are calm affairs with up to 150 properties being offered over three hours. But because the sale lots have unusually characteristics and sometimes limited scope to visit, buyers must be cautious and research is essential.

Common problems include the need for re-modernisation, the existence of sitting tenants in a buy-to-let flat, or structural and subsidence difficulties that mean a buyer will not be able to obtain a conventional mortgage and must risk a cash purchase.

Many auctioned flats also have short leases that must be extended by solicitors unless a new owner accepts a reduced re-sale value in the future. Some auction properties may be in poor locations such as near anti-social industrial sites, on the edge of a busy road or next to a site with permission for major development.

But auctions are perfect for finding homes needing renovation. Remember that your re-sale markets will be different - owner-occupier or investors in London, and perhaps second-home owners or holiday lettings investors in the South-west. Your refurbishment budgets may therefore differ from place to place.

Once you have researched a property coming to auction, the only obstacle is the bid itself. James Greenwood of Stacks buying agency has accompanied buyers at auctions and advises: "Arrive early, sit where you can see what's going on and who you are bidding against. If the bidding is fairly slow, don't show your interest too early."

He says psychology is important. "Make sure the bids work out so that it's you who is bidding when the price reaches your upper limit. This requires a certain amount of mental agility. But don't get carried away and exceed the limit you have set."

If you reach your personal upper limit but then the property is withdrawn because it has not met the seller's reserve, not all is lost. A deal can often be struck there and then, with the auctioneer acting as middle-man while you and the seller negotiate. It is a nerve-wracking but exhilarating experience.

THE SOLUTION

Property one: Cottage in St Ives, Cornwall.

Reserve price: £125,000.

Agent's details: Cobblestones is a classic three bedroom three storey fisherman's cottage in need of modernisation. It is in the centre of the town off a cobbled pedestrian lane, just 25 yards from the harbour. Ideal for re-sale to a second home owner.

Contact: Fulfords, 0870 2414 343.

Property two: Four-room flat in Greenwich, London.

Reserve price: £90,000.

Agent's details: This is flat six in a house on the Cator estate, a private residential co-op near Blackheath. The flat covers four rooms on the second (and top) floor and requires a general upgrade. But it is on only a 20-year lease.

Contact: Savills, 020-7824 9040

Property three: Conversion to a house or flats in Devon.

Reserve price: £110,000.

Agent's details: Cedar Cottage is the freehold part of a hotel being sold in Torquay. There is planning permission for conversion into a two-storey, four-bedroom house, but the agent suggests applying for revised permission to convert it into two smaller flats. There would be room for each to have a private garden and off-street parking.

Contact: Fulfords, 0870 2414343.

FACT FILE: HOW TO BE A FIRST-TIME BIDDER

Auctions are advertised in local property papers, in agents' windows and on websites like www.property-auctions.net. The Royal Institution of Chartered Surveyors says newcomers should follow these guidelines:

* Order a copy of the auction catalogue from the auctioneers and visit a property you may be interested in. The auctioneer will arrange a time.

* Instruct a surveyor to conduct a survey and a solicitor to carry out local government searches - although several auctioneers and sellers do this in advance now, to avoid wasteful duplication by rival bidders.

* Use the survey and your own plans to judge the upper limit that you are prepared to bid for the property, taking into account stamp duty and how much you may have to pay to renovate. Check if the seller has set a reserve price below which he will not sell.

* Line up your mortgage arrangements if you need them - many lenders are happy to fund auction purchases if the survey is found to be acceptable.

* Check what sort of payment the auctioneer will accept. If you bid successfully you must pay 10 per cent immediately and the rest by the time you complete within 28 days, which is why you are advised to have a solicitor already in place.

If you would like House Hunter's help, write to: The Independent, 191 Marsh Wall, London E14 9RS, 020-7005-2000 or e-mail: househunter@independent.co.uk