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Traps at property auctions

I have written about the opportunities available at property auctions a few weeks ago. I revealed that there are huge opportunities, but I must add that there are huge traps too. Any investment that comes with an opportunity to make lots of money also comes with the possibility of losing lots of money too!

So if you want to make money from property auctions, you must know what you are doing. Otherwise, you could lose it all and get a major headache in return!

The first trap is of course poor location. Now some of the properties being auctioned off are dirt cheap. I have seen them, and I’m sure you have as well, properties being auctioned off for less than RM20,000! That is less than the price of some second-hand cars!

However, and this is a big however, just because it is cheap does not mean that you should be buying it. Why not? Because the price may be cheap for a long time! So yes, you can buy it cheap, but then no one will be buying it from you until years later!

The second trap is if the property is occupied. You are buying the auctioned property as it is. So if there are people occupying the property, it is your job to get them out. This is easier said than done. How are you going to get them out? They are not in most of the time. Even when they are, they refuse to open the door. You can get a court order to evict them but that will equal to time, cost and money. Sometimes, they may still not budge even with the court order! So in short, if the property is tenanted, and the people living there are not willing to move out, forget about it – no matter how cheap the property is. Move on to the next property.

The third trap is outstanding bills. This may include electric, water, maintenance and even assessment taxes. The cost may run into tens of thousands! So it is important to discover all these before bidding for the property. Otherwise, you could be buying a property and unknowingly have thousands of Ringgit in bills to be settled.

However, this does not mean that you should shy away from a property with outstanding bills entirely. The point to note here is that you must know about them before bidding. That way, you can calculate your costs and figure out if it will be a worthwhile purchase.

You must also take repair costs into consideration, and hence include them into your budget. The budget will obviously depend on the condition of the property. If the property is good, then the budget will be lower. However, if the property is in a poor state, then obviously you will have to set aside a higher figure. And because of the potentially vast difference in cost here, you would do well to inspect the property first. That is the only way to get an accurate costing.

These are just four of the traps that await an unwary bidder at property auctions. There are more of course! To reiterate, any investment that comes with an opportunity to make lots of money also comes with the possibility of losing lots of money!

So get educated on the subject matter first. Buy the relevant books, and only then, buy the property.

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