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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