Purchasing Repossessed Properties

Another way to source properties suitable for renting out is to consider purchasing a repossessed property. Usually these properties are sold by a mortgage company when the previous owners defaulted on their mortgage payments. A repossessed property might be sold through auction, an estate agent or directly from a receiver but generally they are to be sold within a few weeks meaning that you can purchase a repossessed property very quickly and sometimes at up to 30 per cent below market value and of course there will be no chain involved.

While many sellers spend time and money preparing their home for sale, a repossessed property is usually put on the market at a lower price so that it will be sold quickly. But it isn’t just previously owned properties that are repossessed, you can find new build homes, flats and even buy-to-let properties from developers and investors that have fallen on hard times.

Discounts on repossessed properties are generally between 10-30 per cent below market value but the bigger discounts usually go alongside the need for more refurbishment, so be prepared for a bigger outlay to get the property to a good standard. Some owners have been known to strip the property of everything from boilers, copper piping and wiring before they have left the premises so this scale of ‘fixing up’ should be taken into account.

As with any property you will need to do your due diligence, visit the property several times, take a builder with you and ensure that a full survey is completed to ensure that there are no hidden surprises. Calculate the rental yield using the formula ‘expected monthy rent x 12 / investment (i.e. purchase price + refurbishment costs + other additional costs) x 100 = %.’ You will have your own target rental yield but somewhere between 6-9% is very good.

Be warned though that a mortgage company has a legal duty to obtain the highest price possible for a repossessed property and they will not remove a property from the market until it has been sold. So even if you have agreed a purchase price it is quite possible for another buyer to come along and purchase the property at a slightly higher price, gazumping you even after you may have spent money on surveys etc. but before you have been able to complete the sale.

Another thing you will need to be aware of is the utilities. If the previous owner was unable to pay the mortgage, they may have been unable to pay the utility bills too, which may have been disconnected or even de-energised from the main street connection. The seller is unlikely to know who the previous suppliers were and it may take a good deal of investigation to get everything connected again.

In conclusion then, there are risks to buying a repossessed property but they can make really good investments.