As we always try to source properties with the highest possible rental yield for our investors, it was inevitable to include repossessed property to our offerings. The low purchase prices compared to market related rent makes so much sense. The downside is that in the case of sectional title property, the pattern of nonpayment of bonds will be mirrored in the nonpayment of levies to the Body Corporate. I even made the mistake of selling a unit in a complex where the Body Corporate was under administration. This was a mistake on my side as I accepted the seller’s word that all was sound with the body corporate. Fortunately the transaction could be cancelled and I have learnt my lesson.
Our experience is that with the larger sectional title developments the outstanding levies rapidly accumulate to hundreds of thousands or even into a million rands, but when managed properly by the trustees and the support of a good managing agent they are usually able to save the finances of the Body Corporate.
It therefore makes sense to purchase repossessed sectional title property at below market value even if the body corporate experience financial strain. The following deciding factors could be of value:
1. Did the balance of the outstanding levies increase or decrease during the past 6 months?
2. Is there a month end surplus on the trade account of the body corporate?
3. Were capital investments of the body corporate increased or at least stable during the past year?
It might sound weird for a body corporate to suffer from arrears and to have positive results on the above criteria, but it is fairly possible to obtain such in the larger developments. I recently sold a unit in a complex where the outstanding balance older than 90 days was R800 000 plus, but the balance on their investment account was increasing monthly, with a current balance of R270 000 and they closed books during the past six months with a monthly surplus of R50 000 on average.
A further remedy is that when the sale of property on auction eventually happens, all outstanding levies to the property must be paid before transfer in the deeds office takes place. Though a lengthy process, it slowly shrinks the older balances on the outstanding levies account.
Being aware of the risk and bearing the above in mind, there are excellent buys in distressed properties at present.
Michelle Dickens wrote on the subject on her TPN Rentblog
http://tpnrent.blogspot.com/2010/12/landlords-silent-risk-complex-in-red.html
Our experience is that with the larger sectional title developments the outstanding levies rapidly accumulate to hundreds of thousands or even into a million rands, but when managed properly by the trustees and the support of a good managing agent they are usually able to save the finances of the Body Corporate.
It therefore makes sense to purchase repossessed sectional title property at below market value even if the body corporate experience financial strain. The following deciding factors could be of value:
1. Did the balance of the outstanding levies increase or decrease during the past 6 months?
2. Is there a month end surplus on the trade account of the body corporate?
3. Were capital investments of the body corporate increased or at least stable during the past year?
It might sound weird for a body corporate to suffer from arrears and to have positive results on the above criteria, but it is fairly possible to obtain such in the larger developments. I recently sold a unit in a complex where the outstanding balance older than 90 days was R800 000 plus, but the balance on their investment account was increasing monthly, with a current balance of R270 000 and they closed books during the past six months with a monthly surplus of R50 000 on average.
A further remedy is that when the sale of property on auction eventually happens, all outstanding levies to the property must be paid before transfer in the deeds office takes place. Though a lengthy process, it slowly shrinks the older balances on the outstanding levies account.
Being aware of the risk and bearing the above in mind, there are excellent buys in distressed properties at present.
Michelle Dickens wrote on the subject on her TPN Rentblog
http://tpnrent.blogspot.com/2010/12/landlords-silent-risk-complex-in-red.html
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