Property auctions are not such a common occurrence in Italy and are mostly the result of court or bankruptcy proceedings. As such, they can provide endless investment opportunities, especially in a more difficult economic climate like the present one. Competition among buyers is not normally high and it is one area where the offer generally exceeds demand.
These opportunities are open to all types of buyers from professional property developers to private individuals searching for a family home, or those seeking a profitable rental property.
The advantage for investors lies in the fact that, in a large number of real estate auctions, the auction price is lower than the market price (on average by 25-30%, but sometimes even as much as 50%).
Despite the thrill and adrenalin of an auction, it is important to keep in mind that any investment is subject to the principles of economics and correct planning, which if not followed can transform a favourable opportunity into a serious disadvantage.
Similarly, it pays to remember that most real-estate auctions are a stage in enforcement proceedings and take place under the jurisdiction of a court.
It is therefore essential to have a clear idea of the type of investment you desire, the rules of the proceedings in which you intend to participate and the risks that must be avoided.
The starting point of any good investment must be the planning, i.e., defining budget, long/short-term capital, internal rate of return, etc. This preliminary analysis will allow you to target your search to a property that will allow greater or lesser risks, use of capital, resale potential, etc.
It is in fact evident that an apartment located in the historic centre of an art city will have a significantly higher purchase price than an identical apartment on the outskirts of a provincial town, but the margin of risk will be close to zero, the income will surely be higher (for example, as a tourist rental), as well as a greater possibility to sell it at a good price and within a shorter amount of time.
Once your business plan has been clarified and the target property identified, the second stage involves constantly monitoring the auction notices, now generally published on specialized websites.
Allow sufficient time for the critical planning stages as there is a fairly-short timespan of 45-60 days once the auction notices are published. Experts can of course be relied upon to search and select the best investment opportunities available.
Once you have identified one or more auction notices in line with the target property, the third stage involves visiting the property and completing technical due-diligence investigations (desktop and drive-by).
The purpose is to verify, as accurately as possible, all the “non-economic aspects” of the property, avoiding purchase risks and identifying enhancement potential in the short, medium or long-term. For example, the possibility to divide a property into two smaller units and thereby increase its income, is certainly simpler, and can allow a short-term capital gain, than a possible change in designated use from residential to commercial, etc..
Once that has been clarified, the fourth stage involves competing for the property at auction.
The mistake people often make is to arrive at the auction without first having carried out the above three steps and the necessary analysis of investment factors. This preparation is essential to identify the base offer and highest advisable bid, beyond which the purchase would no longer be advantageous.
A recent innovation, introduced in 2015 to make court auction purchases more accessible, is the possibility to pay the auction price to the court by means of a 12-month instalment plan.
This may allow the owner to pay part of the price while immediately starting to earn an income from the property.
To conclude, real estate auctions can indeed offer excellent investment opportunities to all kinds of buyers. The best outcome can be obtained by seeking expert assistance and being fully prepared before embarking on a purchase of this kind.
© Luca Menichetti-Kate A. Taylor, Additaly Ltd. – riproduzione riservata
Article by Kate Taylor
Additaly – Real Estate & Consulting
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