What Property Investors Need To Know About Buying Repossessed Property

The residential sector comprises a variety of property options for business owners looking to build a property portfolio. One of these options is the repossessed home or bank foreclosure. Active property entrepreneurs in and around the country are likely to come across more than a few advertisements for repossessed houses for sale. They might, however, find themselves a little bit stumped when it comes to the ins and outs of purchasing these properties. As with any investment, it’s important for someone to know the exact nature of what they’re investing in before they make any final decisions. In light of this, here’s a rundown on buying repossessed property.

First of all, there’s the matter of terminology. According to Property Power, “a property becomes a repossessed property when a homeowner is in substantial arrears with his repayment on his home loan, [and] the bank takes legal steps to serve the owner with a summons, take judgment and eventually attach the property.” If the owner of the property remains unable to pay off the bond, then the property will be put on auction at what is known as a sale in execution. Here, the amounts being bid will hopefully be enough to cover the payments owed to the bank. If this doesn’t occur, then the bank will buy back the property and it becomes a Property in Possession (PiP).

Now, onto buying a repossessed property or a PiP. Prospective buyers might feel comfortable with attending the auction, but will of course need to be familiar with auctioning environments and processes, the property market in general, and the circumstances that surround the property being auctioned. Property Power does note that “the auctioneer will read out the terms and conditions of the sale in public before the auction begins”. There are certain advantages to buying property at an auction, from the omission of any kind of negotiating process, to the assurance that the property is being sold at a price the buyer is comfortable with.

Then there’s purchasing a PiP, a process which comes with notable perks. Firstly, the bank is only selling the house in order to recover its financial losses. It has no intention of making any kind of profit on the sale. The property might, therefore, be sold at considerably less than its market value, making it a bargain for the buyer. In addition, the buyer will not be required to pay a transfer duty on the property, while the bank will ensure that all levies are paid and accounts are up to date before the purchase is made. In fact, the bank will do all it can in order to get repossessed properties sold, from advertising them to sending lists of properties to real estate agencies.

There are a few drawbacks to buying a repossessed home. For one thing, if the previous owner was unable to pay off the bond, then there’s a possibility that he or she could not afford proper maintenance costs on the house either. This leaves the buyer with the expensive task of renovating the property. That’s why it’s important to inspect the house and gather various quotes from relevant tradespeople (plumbers, electricians, handymen etc) before purchasing. There might also still be tenants on the premises, and it is the buyer’s responsibility to give them notice or, if the need arises, initiate a legal eviction process.

As for other possible disadvantages, Gerhard Kotzé, Managing Director of the estate agency group, RealNet, says, “the original owner may not have been able to sell the property because it has been overcapitalised, or because the area is in decline and there is very little demand for property there.” Of course, consulting an experienced real estate agent is a necessary means of eventually making the right decision. Kotzé is quoted as saying, “while a PiP may well be a ‘bargain’, particularly for a keen and able DIY enthusiast, professional advice is still needed on the true market value, as well as the likely cost of repairs and the best way to access a favourable home loan package – and the best way to access that advice and knowledge is to enlist the help of a professional property practitioner.”

Now that you know a bit more about buying a repossessed home, you’ll be able to decide whether or not it’s an opportunity you might pursue when you are ready to buy a house. Just make sure you know enough about the property market, have enlisted the help of a real estate expert, have decided whether you want to go the auction route or simply search amongst available Properties in Possession, and, if you are eyeing a specific house, have investigated it thoroughly, in terms of condition, finances and legalities. With such good resources and such a solid understanding, you’re sure to be on track to buy an affordable property that has the potential to generate a high return on investment and create long-term wealth.

from Young Upstarts https://ift.tt/2GMukMr