Top 5 Reasons Why Buy To Let Landlords Should Consider Buying Repossession Properties

Repossession properties are a dream-come-true for buy to let landlords, providing they choose wisely. Some repossessed properties require nothing more than cosmetic work before being marketable as a private rental property but others need to be stripped and completely renovated. Choose the right one and you'll not only bag a bargain…you'll bag a bargain with the following benefits.

1. Big Savings

The vast majority of repossession properties are sold at property auctions on behalf of the mortgage lender. Depending on the condition of the property and the competition in the auction room you'll normally pay around 70 to 80% of the properties estimated market value - sometimes even less if the property is considered to be in poor condition. So a £200,000 house in decent condition with minimal competition could potentially be bought for just £140,000.

On auction day you'll be expected to hand over a minimum of 10% of the purchase price and the balance will become due normally within 14 to 28 days. This means you either have to have cash available or a buy to let mortgage in principal.

2. No Chain

Repossession properties very rarely have tenants when bought and so it is often possible to get access to the property within a few days of the auction. If you are using a buy to let mortgage to finance the purchase then it may take a few days more to get the keys. As a landlord you are obviously going to want to get the property onto the rental market as soon as possible, and with a repossessed property there is nothing stopping you getting to work within days of paying your deposit.

3. Instant Equity

Any property that is purchased for a price below its estimated market value provides the buyer with instant equity. Add a few improvements such as a new bathroom suite, a new kitchen and some redecoration and you can increase the equity by as much as £10,000. Having equity in a buy to let property is of great benefit if you are thinking of expanding your property portfolio in the future.

Depending on the terms of your buy to let mortgage, you can at a later stage remortgage the property and use the equity cash as a deposit on another repossessed property. This starts the cycle again i.e. you have instant equity in the second property that can later be used to help finance further purchases.

4. High Rental Yields

Buying a property for £140,000 as opposed to £200,000 will mean you only have need of a £105,000 buy to let mortgage (based on a deposit of 25%). This in turn means your buy to let mortgage payment each month will be considerably less than if you borrowed £150,000 for the £200,000 property. The amount of rent you ask for the property will be exactly the same regardless of the purchase price though.

The outcome is a higher rental yield and more profit for you. You may need to put in a few weeks of manual labour on the property in order to achieve the maximum rental amount but if you end up with a few hundred pound more in your pocket each month then it is definitely worth the effort.

5. Better Buy to Let Mortgage Deals

As mentioned above repossession properties can generally be purchased for around 70% of their market value. In addition they offer instant equity and high rental yields, and it is these factors that buy to let mortgage lenders find very attractive. Should you as a landlord default on your mortgage payments then the mortgage lender gets a good condition property with equity that can be sold at auction for an amount close to what they would be owed.

The result of this is that buy to let mortgage lenders will consider applications they normally wouldn't consider, and if you have all the right credentials you could bag a mortgage deal better than the one you were expecting. It is important to get a 'mortgage promise' before bidding in an auction for at least the amount you expect to pay for the property. Then if you get the property you're after at a price lower than you thought you can negotiate a little with your buy to let mortgage lender.

In Summary

Repossession properties aren't for everyone and if you're looking for a property that you can simply buy and let immediately then you'll want to look elsewhere. Most properties bought at auction need some form of work doing on them so you'll either want to get your tools ready or hire a professional. Saying this, repossession properties do offer huge benefits, huge savings and potentially the finance for additional properties, plus they can earn you great deals when it comes to buy to let mortgages.

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