Is a repossessed home an opportunity for a savvy investment?
PUBLISHED 2 DEC 2020
If you’re a first-time buyer or simply scouting around for a good deal on your next residential property purchase, you may have heard about the opportunities that exist in the repo property market - but is it worth the risk?
Buying a repossessed home comes with a unique set of advantages and drawbacks that you’ll need to consider before you attend your first auction. Here are some of the things to bear in mind as you explore this type of investment.
How repo properties work
Before you consider investing in any type of asset it’s essential to understand exactly how it works and what risks are involved along with the potential benefits. Here’s a brief overview of how repossessed properties work.
Repo homes are residential properties that are up for auction because the owner was unable to keep up with their bond payments.
Unlike a regular home that’s being sold on the property market at full price, a repo property is usually auctioned for an amount equal to the outstanding debt on the bond or slightly more. This helps the bank to limit its losses as it forecloses on the delinquent homeowner’s mortgage.
Savvy property buyers can benefit from this process by purchasing a home for less that it would ordinarily cost. For example, a property that’s worth R2 million but has a bond of R900 000 may be sold for R1 million or less on auction. This presents an enticing opportunity for prospective homeowners but there are also risks involved.
Know the risks before you jump in
While a repossessed home offers several advantages (most of them financial) there are several potential downsides that you should be aware of before you proceed. These include:
Buying a competitively priced Cape Town home through a reputable agent is an attractive alternative to entering the risky repo market.
Limited choice of properties. You’ll have to bid on whatever homes happen to be up for auction on the day
Inability to view the home beforehand. Unlike a traditional home sale, you may not be able to inspect the premises before you buy.
Voetstoets sale. Repo properties are purchased as is - and that means you may need to undertake extensive - and expensive - repairs to return your new home to a good condition.
Existing tenants and associated liabilities. If the home is currently occupied by tenants or has outstanding utility bills associated with it you may need to seek legal advice to resolve these issues.
The Cape Realty team is on hand to guide you through the important process of buying your first home. Contact us today.
Image Credit: https://pixabay.com/photos/gavel-auction-hammer-justice-legal-3576932/