Thursday, February 19, 2009

More on Instalment Sales

Instalment Sales are huge in the US and UK, but not in SA. The main reason is that the rental income on a property in SA it low compared to the monthly mortgage payments. And the reason for this is because we are paying 13-15% interest on our lending while the US and UK is only paying 4-6% interest.

The ideal instalment sale is where the rental income covers the instalment every month. The instalment will typically be the same or higher than the monthly mortgage payments.

At the moment I have many sellers wanting to sell on instalment sale, but the instalment is higher than the rental income. This will not be a problem if the buyer is willing to cover the shortfall between the mortgage payment (the instalment) and the rental income.

So when will a buyer be willing to do that? Well, if the buyer is getting the property at 10-25% below market value it might be worthwhile to pay the shortfall for 1 or 2 years. This is how most investors buy property anyway. Or the buyer wants to take advantage of not having to apply for a mortgage and the cost savings doing such a transaction. There is no bond transfer or application cost and the legal fees are 50% lower. The transaction would take less than 30 days to complete.

I need to know if we have investors that would be interested in buying properties like this where there is a small shortfall every month between the instalment and rental income. You can email me at colin@prevent-repossession.co.za

Opportunity for Cash Buyers

Distress property sales are increasing in spite of interest rates coming down. I think it is a delayed effect of the turn in the property market. It is a matter of to little to late from Tito. I have always believed the Reserve Bank was behind the curve, and it seems that they are slowly waking up to the fact that they need to act more dramatically. So it seems that we will get another 1% drop in interest rates in March. This will be a move outside the normal Reserve Bank meetings.

According to Elma Kloppers from Beeld, people who are 4 months behind with their bonds have increased to 35 000 in the last quarter of 2008. It is probably higher at present. This is very bad for the banks, so I will not be buying bank shares for a while (hint)!

I receive more and more calls from homeowners that are willing to sell below their bond value. About 2 months ago it was unheard of to sell short of the outstanding bond amount. Now the distress sellers are calling me to sell their houses short on the mortgage!

The banks are willing to release the bond on the house when selling short of the outstanding bond. The bank and the owner will have to agree on this. The bank will evaluate each situation and there are no fixed rules. It all depends on the situation of the homeowner.

We have an opportunity to capitalise on these situations. We can help a distressed property owner to get out of his situation and the bank will be able to remove this ‘bad asset’ from it’s books. The discount on the bond depends on how quickly you can deliver the guarantees. So cash buyers get the biggest discounts and the bank will love you for it.

So to capitalise on these short sales I need to know if you would be able to do a short sale with cash or be able to find finance via bond fast for these deals. Please email me on colin@prevent-repossession.co.za if you want me to notify you of these opportunities.