Property auctions are becoming a more common occurrence in South Africa in the current economy.<\/p>\n
However, while this might seem like a good thing for property investors hunting for \u2018bargain\u2019 buy-to-let opportunities, they should make sure that they have their finances in order before putting in the winning bid, said Shaun Rademeyer, CEO of mortgage originator, BetterLife Home Loans.<\/p>\n
\u201cIn most cases,\u201d he said, \u201cyou will need to be able to pay or provide guarantees for a 10% deposit on the fall of the hammer. You will then need to come up with the balance within a certain time period \u2013 usually 30 days \u2013 and if you are not paying cash, you will need a home loan.<\/p>\n
\u201cAnd in that case, it would really be advisable for you to arrange this well in advance,” he said.<\/p>\n
Rademeyer warned potential bidders to seek financial advise on a spending limit prioir to auction. “You will know what your spending \u2018limit\u2019 is and be less likely to get carried away in the excitement of the auction.\u201d<\/p>\n
The property expert said that the alternative for those who go to auction without arranging a home loan is to make use of personal or bridging loans \u2013 but he cautioned that these usually come at a considerably higher rate of interest than home loans.<\/p>\n
\u201cAnd either way, there are certain documents that you will need to have prepared \u2013 including your identity document, proof of residence, proofs of income, bank statements, a list of your assets and liabilities, and a list of your monthly regular and discretionary expenditure,” he said.<\/p>\n
In most cases the property purchased at auction is not likely to be a primary residence, Rademeyer said, which may mean lenders will look for a bigger deposit and only be prepared to approve a home loan at a relatively high rate of interest.<\/p>\n
Potential buyers should try to view the property before bidding for it, “and also work out the maximum bid you are prepared to make \u2013 no matter what”.<\/p>\n
\u201cRemember, if you overbid, you will be the one that has to deal with the gap between your lenders valuation of the property and the price you have agreed to pay \u2013 and will probably have to cover the shortfall yourself,” Rademeyer said.<\/p>\n