Tuesday, December 16, 2008

How to buy a property without a mortgage - The Instalment Sale

The instalment sale has many names. Some of them are alienation of deed sale, deed of alienation sale, term deed sale, instalment sale and i-sale. I like instalment sale, because it gives a good description of the contract.


This type of contract for the sale of property is not used often, because not many people know about it. An instalment sale is basically a sales contract of property from seller to purchaser were more than 2 instalments will be paid by the purchaser over a period longer than 1 year, but shorter than 5 years.


The normal terms of sale will be a deposit paid by the purchaser initially, but not always followed by monthly instalments that are more than the interest of the mortgage over the property. The purchase price is fixed in the contract and the purchaser has 5 years to complete the sale.


The mortgage stays in the name of the seller. The attorney will make sure the title deed reflects the new owner’s name at the title deeds office. Transfer duty will be paid like in a normal ‘Agreement of Sale’. The transfer duty must be paid within 6 months of contract. The sale takes place much quicker than a normal sale and transaction costs are lower.


Instalment sales are coming back to live thanks to the NCA and current property cycle. People are finding themselves over exposed and not qualifying for mortgages under the New Credit Act. With the instalment sale you don’t need a mortgage to buy a property. The advantage to the seller is that a sale can take place much quicker and he will be able to prevent repossession.


The instalment sale is handy when a purchaser knows that his personal rating with the NCA will improve over the next 5 years, but does not qualify for a mortgage at present. The purchaser could be someone with a strong cash position, but cannot qualify for a mortgage. So the purchaser can take on a large property or mortgage and not worry about short term expenses on the property.


The seller would be someone who wants to sell his property for the outstanding amount on his mortgage. He does not have any equity to release on sale of property so he does not worry to wait 5 years for sale to complete. The monthly instalments are covering his mortgage payments, so he does not have any cash flow problems.


The advantage to the purchaser is that he can buy a property with no mortgage and benefit from capital growth over the 5 years. And if he still does not find a mortgage after 5 years, he can sell the property. With the proceeds he will repay the seller and sit with equity in his pocket. The purchaser can repay balance or sell the property at anytime. He does not have to wait for the 5 years to pass.


The purchaser can use the rental income from the property to pay the monthly instalments to the seller. Sometimes the rental income is short of the monthly instalment. The purchaser will have to use his own funds to pay the shortfall, but normally this shortfall is compensated by the fact that he bought the property below market value and with the capital growth over the following 5 years. As rental income increases the shortfall will decrease as well.


You can see that this kind of transaction could be a good investment vehicle to the investors and urgent seller.



If you are interested in purchasing a property with an instalment sale agreement, please email me on colin@prevent-repossession.co.za.


Tuesday, December 2, 2008

2 Bed Flat in Woodstock, Cape Town - 18% discount!

Price: R450 000.00
Current Market Value: R550 000.00 (2 similar flats were sold for R630k in June 08!)
18% discount or R100 000.00
2 Bed, Bath/shower, kithen, lounge
Size: 63 sq meters
Current Rental: R4000 pm (R4400 pm next year)
Levy: R605 pm
Address: Listowell Rd, Woodstock, Cape Town
Close to Cape Town CBD. Very Good rental area.
Photo's available

E-mail me on colin@prevent-repossession.co.za to make an offer.

Click on map to navigate. Zoom in to see Listowell Rd.

Plot 181, Doornrandje, Centurion/Pretoria - 22% discount


Plot 181, Doornrandje, Centurion/Pretoria - R1 669 500.00
Current Market Value R2 150 000.00 (Valued at R2.4m last year)
Discount to Market Value - 22%
R480 500.00 discount!
Recently Completed New Building
5 Bed, 4 Bath, 3 Garage, 1.8 ha stand
460 sq meter house
18000 sq meter stand

Email me to make an offer: colin@prevent-repossession.co.za

Click on map to navigate.