What lurks beneath the repo surface?

The pros and cons of investing in repossessed property.

Historical Monuments And Renovation Restrictions | Property Blog

————————

Repossessed properties (“PIPs”) are properties that have been seized by the financial institution due to non-payment of monthly instalments by the bond holder. Such properties are then auctioned or sold by the financial institution to recover their investment.

The upside

Because the financial institution would typically sell on sheriff’ auction, repossessed properties are often available at lower than market value prices, providing for profitable investment opportunities. This is subject to the principal creditor (the ex-mortgagee) not buying in to limit its own damages. Should this be the case, the bank as the owner will then sell the property should they get acceptable offers.

All arrear rates and taxes are also covered by the bank, the seller in this case, which ensures that the relevant rates clearance certification is acquired to proceed with the transfer.

In addition, because the bank has a vested interest in the sale of the property, they will be involved in the transaction for the most part and could assist with the acquisition of finance for the purchase as the lending institution.

The risks

There are potential risks involved in any property purchase, and when it comes to repossessed property this is no different.

One of the largest risks is related to tenants who do not vacate the premises or do not pay rental towards occupation. With the introduction of the PIE Act, it has become more difficult to evict a tenant if they do not have any other residence or the means to obtain one. This can result in a drawn out and costly legal battle.

In addition, in situations where a property is repossessed due to lack of bond repayment, it is possible that maintenance of a property may have been neglected. Therefore, there are financial risks associated with renovations or rectifications that the property may require.

Repossessed properties are sold “voetstoots”, or as is, and therefore any hidden costs associated with the property will most probably be for the purchaser to manage.

Protective measures

The starting point should always be thorough research. This will uncover any structural damages to the property or issues that can’t be easily rectified or which might be costly to resolve.

This research should also include an analysis of the property market to determine a fair and reasonable sale price for the property based on the size and condition of the property, and the area it is in.

As part of the offer to purchase, it is also possible to include a clause stipulating that the balance of the purchase price will only become due once the property is vacant to avoid any trouble relating to tenant eviction.

Most importantly, it is advisable to work with professionals as part of this process to ensure the research and inspections are concluded accurately and that the offer to purchase sets up a positive investment.

Follow Snymans on Facebook for more legal advice, information and news about property.

6118

Recommended for you

Property Blog Articles | Advice | Contractual Matters | Market News
Property Finance

Your bond settlement amount – a brief guide

3240

The sale of a property can often bring with it unforeseen expenses, but this needn’t be the case. To take the mystery out of bond settlement costs, we have put together this brief overview so that sellers can plan appropriately and avoid being caught off guard.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Property Finance

Multiple mortgages

4672

Extending finance on a home loan is possible in two ways: accessing funds under security of the already registered bond or, should the security provided under this bond not be sufficient, a second bond can be registered.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Property Finance

Approval in principle

6153

Buying a home can be a stressful process, particularly in a competitive market where you need to move quickly or run the risk of losing out on buying the property of your dreams. Being given an ‘approval in principle’ from a financial institution can play a significant role in moving ahead with the property agreement contract.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Property Finance

VAT or Transfer Duty?

8716

Buying a property comes with a number of expenses in addition to the basic sale price, one of which will be either VAT or Transfer Duty. Every property transaction will incur one of these two forms of tax, but it is important to understand the difference and know which will be applicable as they have different consequences for the buyer and seller in a transaction.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Property Finance

Deposits on new developments

10186

Purchasing a property off plan is often considered a good investment. But before putting down a deposit, it’s important to understand what this means…

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

What lurks beneath the repo surface?

The pros and cons of investing in repossessed property.

Historical Monuments And Renovation Restrictions | Property Blog

————————

Repossessed properties (“PIPs”) are properties that have been seized by the financial institution due to non-payment of monthly instalments by the bond holder. Such properties are then auctioned or sold by the financial institution to recover their investment.

The upside

Because the financial institution would typically sell on sheriff’ auction, repossessed properties are often available at lower than market value prices, providing for profitable investment opportunities. This is subject to the principal creditor (the ex-mortgagee) not buying in to limit its own damages. Should this be the case, the bank as the owner will then sell the property should they get acceptable offers.

All arrear rates and taxes are also covered by the bank, the seller in this case, which ensures that the relevant rates clearance certification is acquired to proceed with the transfer.

In addition, because the bank has a vested interest in the sale of the property, they will be involved in the transaction for the most part and could assist with the acquisition of finance for the purchase as the lending institution.

The risks

There are potential risks involved in any property purchase, and when it comes to repossessed property this is no different.

One of the largest risks is related to tenants who do not vacate the premises or do not pay rental towards occupation. With the introduction of the PIE Act, it has become more difficult to evict a tenant if they do not have any other residence or the means to obtain one. This can result in a drawn out and costly legal battle.

In addition, in situations where a property is repossessed due to lack of bond repayment, it is possible that maintenance of a property may have been neglected. Therefore, there are financial risks associated with renovations or rectifications that the property may require.

Repossessed properties are sold “voetstoots”, or as is, and therefore any hidden costs associated with the property will most probably be for the purchaser to manage.

Protective measures

The starting point should always be thorough research. This will uncover any structural damages to the property or issues that can’t be easily rectified or which might be costly to resolve.

This research should also include an analysis of the property market to determine a fair and reasonable sale price for the property based on the size and condition of the property, and the area it is in.

As part of the offer to purchase, it is also possible to include a clause stipulating that the balance of the purchase price will only become due once the property is vacant to avoid any trouble relating to tenant eviction.

Most importantly, it is advisable to work with professionals as part of this process to ensure the research and inspections are concluded accurately and that the offer to purchase sets up a positive investment.

Follow Snymans on Facebook for more legal advice, information and news about property.

6118