The Property Industry is an attractive but somewhat daunting field to invest in. With high returns but also high risk, detailed legalities to follow and a seemingly endless list of jargon to sift through, it’s difficult to understand where to even begin.
Avamore Capital are producing another educational series which looks at ‘bridging the gap’. We will be partnering up with industry experts to investigate how you can prepare and ensure that your site converts into a successful development project. For now, we have put together some of the options you can consider when it comes to sourcing a site.
Websites such as Rightmove.com and www.Zoopla.co.uk can be an easy and broad place to find properties for sale but are you able to find a good site here?
- Easy to access
- Wide marketplace
- Easy place to find the best local agents
- Excellent place to do market research on sales prices
- You are competing with the whole market for a deal which means it is difficult to find a ‘bargain’
- Agents don’t always list their full range of properties so doing further research and cross referencing is key
- You may need to be fairly quick with your enquiries, in some instances, properties may have already sold even though they are still listed on the website.
Online portals are ultimately just that, portals. Nevertheless, for an investment or development pro, portals serve as a handy research tool and are key to browse the market. Furthermore, you can use additional resources like Houseprice.AIto find out more about the area you are searching in and determine how prices might change in the future.
- Ease of access: 10/10
- Effectiveness: 2/10
Estate agents have a mixed reputation, but fundamentally, they provide an important service for property vendors and buyers alike (although their customer is ultimately the vendor, rather than the buyer). Again, it is tricky to say whether you would find a ‘bargain’ through an estate agent, we have examined some of the pros and cons below:
- It is easy to register with estate agents
- If you can develop a close relationship with an agent or get a reputation as a “hot” buyer, you can get a relatively early deal before the rest of the market.
- Again, if you have a close relationship with an agent, they may put you forward as a preferred buyer, even if your offer is not the highest
- Not all agents are motivated to get their seller the best price. If you can complete the purchase quickly an agent may recommend a slightly lower offer. In this instance there is no guarantee that the vendor will take the offer
- Agents can also advise you of properties that need to be sold quickly (e.g. probate, failed sale with onward chains etc) which can be a source of good deals
- You are still competing with a wide market of buyers, including owner-occupiers who don’t have to make a profit
- It takes time and patience to develop relationships with good agents
- In strong markets, very few vendors are forced sellers so low range offers will rarely be accepted and could damage your credibility with sellers and agents
- It is very hard as a buyer to differentiate yourself with competitors at first
This is a relatively easy way to access “opportunities” but will require a lot of effort and luck to find profitable sites. It is also unlikely that you’ll be able to source land through estate agents.
- Ease of access: 7.5/10
- Effectiveness: 4/10
There are numerous TV programmes which suggest that property auctions are great places to find deals. In reality, do they live up to the hype though? We lay out the case for and against below:
- It is relatively easy to access properties at auction, with lots starting at just a few hundred pounds (usually ground rents)
- Auctions are transparent, if a property goes to the room the highest bid wins if reserve price is met
- There is an extremely fast process at a property auction catalogues are sent out 3 weeks prior to auction and the exchange of contracts happens when the auctioneer’s gavel comes down
- Bidding can be done remotely (i.e. online/by phone/proxy).
- Potentially properties can be bought before the asset goes “to the room” especially if the vendor is nervous about failing to sell/meet reserve
- Banks put repossessed properties for sale through auctions sometimes with low reserve prices (i.e. potential for a low-price property)
- Auctions are highly competitive at the moment which means prices are being driven up
- Purchasing a property through auction requires upfront due diligence (lawyers & surveys) when there is no certainty of completing a purchase
- Each property you attempt to buy can be highly speculative and you can do a lot of work and still not “win” the bid
- If you fail to do your due diligence, it can be costly. Title matters or structural issues that might have reduced a bid prior to auction cannot be rectified
- Competing bidders can get carried away with their bids causing investment rationale can go out of the window
- If your finance fails to come through on completion, you could find yourself having to fund the entire purchase in cash or worse, you would lose your 10% deposit
Auctions represent a fast way of accessing deals, however, bidding can be ferocious, and you could waste a lot of time trying to buy things. Additionally, if you are successful, your misadventure could be costly if you don’t get your due diligence right. That being said, purchases can be very effective if you are lucky and do your preparation.
- Ease of access: 6/10
- Effectiveness: 4/10