Contributed by Alan Poon
In my previous column, I talked about affordability as a choice when it comes to investing in properties. We increase our income to leverage more from the banks. The moment we recognise our ability to finance a specific range of properties, our choices become more evident as we hit the reality to achieve what we set to invest in.
While many start to scout for the right property, the standard option is the primary market, where attractive deals are offered by property developers or the secondary market, where below market deals seem more apparent in the past few years.
Unbeknownst to many, there is always another segment of the property market which is neglected, more often than not, by property buyers based on my years of observation; The auctioned property market.
If you have opted for auction property before, most legal practitioners or auctioneers will lay out the buyer’s caution checklist beforehand, causing the indirect syndrome of “let’s avoid these auctioned properties altogether”.
Certain investment consultants will even advise their clients not to go into this tertiary market as no proven method seems to work, or it would solely depend on luck if there could ever be any good deal from the auction winnings.
The question, now is on how would one embark to sniff deals that are lucrative from the auctioned segment despite all the naysayers set to cloud one’s judgement?
For a start, a property comes to auction when there is a default in property mortgages, as the owners can no longer hold onto their prized asset due to financial distress. While this is terrible news to the owner who is losing their home, an investor who is looking for a good bargain will see this as an opportunity to get a below-market-value property.
Why auctioned property?
Auctioned properties are usually priced lower than market value to entice keen bidders to take part in the auction process. From the holistic point of view, one’s man loss is another man’s gain.
By buying an auctioned property, we are indirectly helping the distressed owner with financial relief so that they can move on as the debt will be settled for good.
Another good reason why one should look into auctioned properties is that these gems are randomly available almost on a daily basis, unlike the new developments of which the supply could take years to roll out to the market. The auction listings also come in plenty of property types, locations, sizes as well as price range.
How to get the best deal on auctioned properties?
Auctioned properties are located mainly in matured areas where infrastructures already exist, and ready tenants are available in most cases. When such properties exist in an area of interest, it is a no-brainer to invest in these units since one is already familiar with the area.
Auction bidding which can be found nationwide on weekdays also permits an excellent opportunity to buyers as most of these auctions are unknown to many. Most of us are either occupied with work or daily business daily and are unaware of the auction process that is happening.
It will not be a surprise if there are no bidders for most properties that go under the hammer.
When an auctioned property fails to attract any bidder, the property will be re-auctioned in the followings months with its reserve price (starting price of auction bid) going lower at least 10% from the previous reserve price. As such, auctioned properties can be quite attractive when it goes to the third or even some cases, fourth auction bidding where up to 40% below market price can be achieved!
With such massive discounts which are only possible in the tertiary property market, it would make financial sense to spend considerable time and effort to study about the auction.
While there are many pros and cons in investing not just in auction property but also in the primary and secondary property market segments alike, it is crucial to focus on the brighter side instead of only the negatives. Do not shy away from auction properties just because of hearsay.
Do your due diligence despite the risks involved in any property buying. After all, once you know the why, the how will come naturally.
Auctioned properties? Why not?!
Until next time, let’s ‘Borak Real Estate’!
About the Contributor
Alan Poon
Alan Poon, founder and CEO of SuperiorWealth Group, is a passionate Real Estate industry observer as he regularly speaks and appeared in major media publication nationwide. Alan is the author of three “Good Tenant Great Tenant” series of books and is recognized by The Malaysia Book of Records as “The First Author to Launch Three Books Simultaneously”. Alan welcomes feedbacks and can be contacted via alanpoon@superiorwealthmastery.com. Do visit Superior Wealth Group for more info.
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