Are auctions the right place to buy a new investment property?

There are several ways to buy an investment property, from looking at what your local estate agents have to offer to investigating private sales. One way of finding real estate investment properties that has always been popular is sheriff’s auctions – but it’s essential that you’re aware of all the risks if you want to see a real return.

• You don’t get a vacant occupation. This means that often there are already people living in the property and vacating the premises is the new owner’s issue – it’s not part of the auction or purchasing process. You’ll likely either have to make a deal with whoever is living there or get an eviction order from the Sheriff, which costs around R10,000.
• You may have to get multiple eviction orders: The eviction order can be enforced by the Sheriff fairly easily – but evicted tenants often break back into the property in the following days. This means you’ll have to get another notice and try again. This can get expensive quickly, not to mention repairing damage to the property.
• You are responsible for outstanding municipal bills: As the new owner, the municipality will collect any outstanding water, electricity or rates expenses from you – even if they date from before you owned the property. These can be very high, so you risk picking up bills of hundreds of thousands of Rands that can offset the bargain price you got for the property.
• You may have to deal with hostilities from the previous owner: Having your property seized by the Sheriff and sold is an unpleasant situation and can easily bring out hostilities between the previous owner and the new owner, which can make the property difficult to rent, maintain or utilise.

How Do I Lower These Risks?

Rather than buying at a Sheriffs auction, rather start researching your options for properties that you can purchase from the owner after the judgement has been raised against them but before the auction takes place. Here, you’ll have to pay at least the value of the judgement and meet bank approval. Other alternatives include commercial auctions or buying properties from the bank that they have purchased back at auction. In any case, it is essential to do your research and ensure the property will truly add value to your portfolio.

Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/