PROPERTY ADVICE
Q &
PROPERTY ADVICE
Q &
A
QFriends have approached me about buying an investment property together. How do I protect myself in the group?
NICCI DU PLESSIS DU PLESSIS & CURRAN
I t’ s a great idea to buy with friends, as you are spreading your risk, but it’ s
imperative that you engage a specialist property attorney to prepare a thorough
Property Partnership Agreement( PPA) to protect all of you individually. The agreement will cover crucial issues such as death, divorce, insolvency and a hasslefree exit strategy – specifically detailing how the property is valued and who gets what and when.
Where people go wrong is in underestimating the complexity of a fall-out of the group. The PPA acts as the anti-nup of your property owning relationship.
Intentions are always good but life circumstances can change rapidly. For example, you buy a property with friends to flip and make a quick profit but then two of the group love the property and want to live in it after renovation. Now what?
Always see a specialist property Attorney before committing to this type of purchase.
QIs it possible for one to create cashflow on a foreclose property? For example: I place an advert in a newspaper looking for people with distressed properties; I then find some who don’ t qualify for a home loan but who want to buy a house.
MEYER DE WAAL MY BOND FITNESS
Y es, you can get into an arrangement with the distressed home owner to take
over his property, without actually taking transfer of the property, to ensure that he still retains or saves a portion of his capital or equity in the property. If it is sold on an auction, he is most likely to lose his equity and be faced with a shortfall between the net auction proceeds and the outstanding home loan, as the experience is that properties are sold much under market value at auctions. You may have to pay in the shortfall on the home loan to stop the lender from selling the property on an auction. Consider the risks.
To safeguard yourself, you will require a well-structured agreement with the home seller, as the latter may turn around a few months later and‘ forget about the good deed you did and try to work you out of the agreement. A rent2buy option agreement or an ISA – Instalment Sale Agreement- may be a good type of agreement to prepare. Here you take over occupation and possession, are entitled to all income( and profits) and liable for expenses.
Also, recommended: do a good credit check on the seller / property owner to make sure that he has no other large debts that can lead to a second foreclosure on the property and check how much electricity, rates and taxes on the property are outstanding and if the property is insured. The new buyer whose bond was declined, but has the cash flow to cover the rental can then enter into a similar rent2buy option, or ISA, with you again and take transfer when his credit score / affordability is back on track again.
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