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Before you even consider buying property at an auction read this

by , 13 April 2016

Today's property prices are high and it's become near impossible to jump onto a property listing website and find a deal that's worth your time.

The best way to find under-priced property right now is at sheriff auctions.

But before you jump into action and race to the first sheriff auction to buy a property there's a number of things you need to consider first before you even consider buying…

Remember these five things before you buy anything at an auction

To be successful at a sheriff auction you must be prepared.

You’re reading this article – and that’s the first way to increase your knowledge. But you also need to follow these five steps:

1. Get yourself on the Sheriff’s mailing list
You want to make sure that you’re always aware of what properties are coming up for auction.  You certainly won’t get every property at auction you want to – so you’ll have to go to as many as possible.

Start out by phoning the sheriff in the area you are interested in and requesting they put you on their mailing list. That way every auction they hold you’ll get a list of properties up for auction beforehand.

2. Identify the property you are interested in beforehand

Speak to any property investor and they’ll tell you that pitching at an auction without an idea of what property you are interested in and what you can pay is suicide.

So once you get a list of properties up for auction sit down and go through it. Identify the properties you are interested in. If you invest in  One Bedroom flats – look for those. Don’t go to the auction and bid on smallholdings…

3.Make sure you understand what you’re getting yourself into…

When buying on sheriff auction you are liable for settling the arrears municipal accounts. So make sure you know how much these are beforehand. Some sheriff’s publish the amount with the list of properties. Other sheriff’s don’t. If you don’t have this figure phone the sheriff, quote the property address and ask what the amount of arrears payable on successful purchase will be.

You don’t want to skip this step.

I’ve been to auctions where R400,000 apartments have R200,000 arrears levies and municipal debt to be paid. This can seriously affect the amount you can pay for these properties…
4.Try to do an inspection of the property you’re interested in

It’s not always possible to gain access to the inside of a property. But at the very least you should drive to the address of property. Scope out the area and look at the outside appearance of the property. If it is in an estate or sectional title complex make sure to find out about the levies and whether the complex is doing well.

Also check whether the property is occupied.

Remember – you will be stuck with the occupants of a property bought at an auction and it’ll be your responsibility to get rid of them if you want to put tenants in or sell.

5.Make sure to do the math beforehand

So you’re still set on buying this property on auction. Now you need to do the math.

First check out what amount the property you’re looking into can sell for. Subtract estate agents commission from that. Then you need to allow for other costs as well:
  • I usually allow for around 10% of the property value for repairs.
  • You need to make allowance for an electrical certificate of compliance
  • Remember the sheriff charges commission on sales – this amount can differ but is typically 6% of the price you bid for the property
  • Allow for transfer costs
  • Adjust for arrears levies and municipal fees payable
Now, when you’ve subtracted all of these expenses from the price you’d be able to sell the property for you get to the maximum amount you can bid for the property if you want to break-even.

Obviously break-even shouldn’t be the target. I say you need to target a minimum of 20% profit on a property. Preferably 30%.

So adjusting for this gives you the maximum amount you can bid for the property when at the auction.

Decide on this figure beforehand. Stick to it. That’s the only way to avoid disappointment.

These five steps are crucial when you want to buy properties on auctions. Skip them and you could very well end up with a bad investment that’ll cost you money.

If at first you get outbid and don’t find success on auctions don’t despair. Remember we live in a world filled with opportunity. Today’s auction isn’t the last one that there’ll be. In a week or two there’ll be another and another. Just keep on trying.

Here’s to unleashing real value,

Francois Joubert
Author, Become a Master Property Investor in 90 Days
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Before you even consider buying property at an auction read this
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