Distressed Property Market and the Investment opportunity it presents

by Jan 14, 2021Real Estate Owners0 comments

“There are three different stages during which buyers can purchase a “distressed” property.” (Question from Business Insider Blog) 

In review of the Business Insider article: Please read the above article followed by this blog to get a broader perspective and information from Daniel, who has attended literally thousands of auctions (25 years in the distressed and impaired real estate market) and has a very good understanding of the “sale in execution industry”. The advantages, disadvantages, and alternative options to purchase real estate investments at well below market value but with substantially less effort and better results.

  • “Property experts predict that many distressed properties will go on auction in the coming months, as economic hardship bites, widely.”
  • These auctions present the opportunity to buy a property for a bargain, with some recently selling at discounts of up to 70% in recent months.
  • Business Insider South Africa recently attended eight property auctions in Gauteng, covering 33 distressed properties, and saw an average discount of 42%. (Business Insider Blog)

It is understandable that with the current loss of employment and rate of business closures through Covid-19, lockdown, and other financial factors that homeowners are under severe pressure, to either sell their home or have it placed on auction. Homeowners are further challenged by the inability to access available funds within their current bond to improve the market value for their property, in order to sell. We can either use or misuse these opportunities (see blog Part 1 and Part 2 for more).

Although there are various solutions and options which can be followed to avoid or stop the legal action prior to a sale in execution, the Assist Group (formerly Property Assist, now Real Estate Assist) is one of the few organizations that specialize in these solutions for the real estate owner.

With regards to purchasing property on a sale in execution auction with specific reference to the new laws implemented in 2018, auctions are probably one of the most unproductive ways to purchase a distressed and or impaired real estate opportunity. Apart from this blog, https://wealth-assist.co/blog/sourcing-and-assessment-of-property-investments posted on the Real Estate Assist website which I would suggest you read to understand more about buying property on sale in execution auctions, the new laws have made it even more unproductive.

The important question is why would you prefer to misuse other people’s misfortune to enrich yourself if there is a way where you can assist real estate owners in the process, through structured real estate transactions whilst making excellent returns and of course sleeping better at night. We all understand the principle that says “what you sow, you will reap” Read the article about Impact Real Estate Investment in South Africa https://wealth-assist.co/blog/detailed-look-into-impact-investment-in-south-africa to find out more.

Yes, there may be a small percentage of distressed properties that get approved at a price substantially lower than market value. The challenge is that the prices as indicated in the statistics provided in this article do not include the arrears in rates, maintenance cost to get it back into shape, the interim interest from the date of confirmation to date of registration, and then the biggest and most expensive exercise, evicting the current occupant or previous owner. There are many pitfalls and challenges in the industry that need to be considered and especially the effort involved to successfully obtain an opportunity.

I have personally attended thousands of auctions for approximately 15 years, and have realized two things: 1 there are substantially better ways to do this, and 2includes the cooperation of the seller.

To make an impact whilst working with a cooperative seller is substantially better and will also save you time, money, and other resources.

There are various additional challenges that I am not discussing but need to be considered when buying on an auction:

  • Preparing for auctions when at least between 40% and 50% of auctions are canceled (wasted time, money, and energy).
  • New increased timeline and process of a sale in execution (new laws)
  • Non-cooperative sellers and access to the property prior to the auction.
  • No detailed assessments with no access prior to the auction.
  • No detailed quotations for maintenance required with no access prior to the auction.
  • Time, effort, and cost of eviction if the owner does not want to move.
  • Intimidation by gangs and other parties, who seemingly control auctions.

“There are three different stages during which buyers can purchase a “distressed” property.” (Question from Business Insider Blog)

The stages have vastly increased from the previous era. It does not only include sales of a distressed property prior to action, but also various other options where the owner can first approach the bank for (restructuring, plans from the bank to recover), as well as various new companies and services which provide alternative solutions through structured property transactions, some of which assist the real estate owner to recover and keep his home, or to unlock equity to address the need.

The fact that the new process actually starts much sooner due to rule 46 which needs to be applied, extends the litigation process, and cost significantly.

There is no issue in buying the property in possession (PIP’s) from the bank seeing that it has already been taken back. In essence, no one is affected but the purchaser still needs to understand that the bank will not do a transaction where they provide vacant occupation. The alternative is that you make an offer to the bank which is low enough to budget for the eviction etc.

“Here’s why a distressed property sells for such deep discounts:” (Question from Business Insider blog)

Apart for the documented reasons, the attendance on sale in executions has dropped significantly more, because of the fact that the new procedures have demotivated the regular auction attendees since their deposits may lie on trust with the sheriff for up to three months or longer, whilst the reserve prices are reapplied for in court and then in numerous cases not accepted.

When all is considered, and the alternatives researched, the Assist Group is the only institution providing:

  • Pre-vetted and approved (due diligence, valuations secured, real estate inspection, maintenance quotations),
  • Well below market value (not exceeding 75% all cost included)
  • Predetermined returns from 15% p.a. and more, and
  • Helping others whilst making excellent returns with real estate as security

Extracts from the Business Insider Blog as well as responses and information added by Daniel Lombard (Executive Chairman of Assist Group) https://www.businessinsider.co.za/repossesed-distressed-properties-on-auction-how-to-buy-for-a-bargain-2021-1 

Visit our website for more information and on-the-shelf opportunities with predetermined returns. www.wealth-assist.co

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