Written by: Edward Feather on 15th September 2022
Online property auctions have become a popular way for investors to find buy-to-let properties. If you’re looking to build a property portfolio, auctions are a more simple and faster way to purchase your next property. Here, we’ll explain rental yields, how to improve your investment profitability, and why online property auctions are a great option for purchasing buy-to-let properties.
The rental yield is the return made on your property investment. The profitability of your investment is worked out based on the monthly rent charged against the property’s value. To find out what the rental yield is, simply divide the price paid for the property by its annual rental income and multiply it by 100.
Generally, a rental yield of at least 5% is considered a good yield for a property bought at auction, with the most profitable areas of the UK coming in at just over 8%.
Online property portal Zoopla reported that the highest gross rental yield in the UK was recorded in Ayrshire, Scotland, at an average of 8.48%.
In England, the North East region was recorded as the investor hotspot of the country, with an average gross yield of between 7.6% and 7.8%. In the North West, Burnley is also an excellent place to consider purchasing a property at auction. The town’s average gross yield came in at 7.92%, based on the average property price of £74,681.
When you’re looking to boost your profitability by buying at auction, consider where the property is located. If you purchase in an area with high demand from tenants, or near a university, for example, you could achieve a higher rental yield - particularly if you’re purchasing auction lots in need of work, for a lower price.
Another consideration is to convert a property purchased at auction into an HMO (house in multiple occupation). HMOs offer more bedrooms for tenants, providing more opportunities for additional rent payments and increasing your rental yield.
At Pugh, we’ve sold a wide variety of property types at auction. Some properties are in ready-to-move condition, some need renovation work, and others are probate properties. For buyers looking to achieve a high rental yield and increase the profits of their investment, buying at auction is an excellent way to find properties available for lower purchase prices than current market conditions.
After an initial investment towards extra work on a property, or by purchasing a probate property from an owner in need of a quick sale, buyers could achieve a higher rental yield.
Purchasing a property at auction is more transparent, so buyers can be assured they’re paying in line with what others think it’s worth. There are no chain delays, and contracts are exchanged upon the fall of the virtual hammer - so there are no unexpected withdrawals before the sale completion. If any work is required, buyers are made aware of the extent before the auction takes place, so there won’t be any nasty surprises picked up during surveys further down the line.
Properties brought to auction for below the market value may also be subject to a regulated tenancy agreement, which is a fantastic option for investors who are looking to capitalise on their investment long-term.
A regulated tenancy is an agreement between a private landlord and their tenant(s). The agreement is applicable to tenants renting their property before 15th January 1989, and gives them the right to occupy the home for life. Usually, the rent paid by a tenant under a regulated tenancy is of much lower value than the current rental value of the property.
However, this is good news for investors looking for a tenanted property at a lower cost. Properties with sitting-in tenants subject to regulated tenancy agreements are brought to auction below market value, so despite restrictions, the initial investment is much lower.
Once the tenancy ends, the property’s value will increase back to its current market value. So, although the rental yield may be lower than if you were to find a new tenant under an Assured Shorthold Tenancy scheme, the long-term capital on the property will be much higher.
Thousands of investors and landlords looking to purchase buy-to-let properties turn to online property auctions every year. With no chain delays, faster completions than the private treaty market and lower guide prices, online auctions make it easier for current landlords to build their property portfolios, and for new prospective landlords to begin theirs.
If you’re a landlord looking for your next investment, browse the lots available at our upcoming auction dates.
For more information about buying a rental property at auction, call us today on 0345 505 1200.
Written by: Edward Feather on 15th September 2022
Edward is an experienced property auctioneer with over 15 years' property auction experience and considerable knowledge of the North West property market.
Edward joined Pugh & Co in September 2018 from SDL Auctions in Chester. He was also a Director at the Cheshire and North Wales franchise of the Auction House business, based at estate agent Humphreys in Chester, before its acquisition by SDL in 2016.
