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The Problem with Buying at Auction

October 16, 2017

I wanted to tell you about a recent experience I had at an auction, where I witnessed first hand the "HUTH effect". 

Football fans might think I'm talking about Leicester City full-back Robert Huth, but what I really mean is Homes Under The Hammer. 

I found a shattered old house being auctioned in a popular student area that's covered by Article 4. You can see in the photo below it's a grand old property, but it needs some love:

 

 

 

We viewed the property and felt there was a lot of potential. However, some structural issues meant it would need a large investment to rectify the defects, before we got to upgrade the standard of accommodation. 

We assessed the deal and looked at comparable properties in the area, finding a similar sized property in perfect condition on the market for £225,000. Realising there was approx £60,000 of investment to make, our max purchase price to make this a commercially viable investment would be £165,000. Guess what, that's exactly the guide price.

So here's what happened at the auction?

We watched as the auction started slowly, with the auctioneer initially dropping below the guide price to get started. He began adding £1,000 increments with each bid, until eventually steering two investors well over £225,000. 

 

And here's the interesting part, the final purchase price was £241,000. This is £16,000 more than the cost of the other property of the exact same size, on the same street and in perfect condition. 

And that's the HUTH effect. Where a property investor pays well over the odds, encouraged by Homes Under the Hammer to think every property sold at auction is a bargain. It will be a long time before this investor get's their money out of the deal, that's for sure. 

And this is exactly what we avoid when sourcing properties for our clients. We do look at auctions, but primarily we work on our patch in Bedfordshire, building relationships with agents and vendors to bring great deals to the table.

We'd be delighted to find out more about your requirements if you're looking for investments. This will help us keep you abreast of any great deals we find that match your needs. Why not book a call with us and tell us what you're looking for? Whether it's HMOs, commercial conversions, rent to rents, flips or good old single lets, we're uncovering them all. 

The conversation might just lead you to some very profitable investment opportunities. Click here to book a call and tell us what you need. 

 

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