Is Your Back against the Wall?
A quick sell is a new market trend that has gained popularity due to the current financial crisis. It is now offered by a few top banks in South Africa. It gives the distressed homeowner or financially pressured investor the chance to alleviate bad debt (due to inability to keep up payments on an investment) quickly.
Why a double sided coin?
If you are a homeowner, a quick sell should not be your first option, especially if you have not reached the 50% mark on your down payments for the bond. If you are in the more advantageous position where you have paid off more than 50% of the bond, then a quick sell might be a good option, depending on the complexity of your financial situation. The reason for this is that normally the bank will flog the house for up to 50% of the actual market value. If the property is sold for less than the current owner owes on the bond, they must still pay off the balance of the debt over a ten year period.
If you manage to pay it off in less than five years, the bank will charge you zero interest. However, always remember that you are still paying off debt on a house that you do not even own. This is a financial nightmare. You are effectively throwing your money into a dark hole and you will never see it again. Let’s not forget that you will need a new roof over your head, so take into consideration the cost of rented accommodation.
If, however, you are halfway finished paying off your bond and under a lot of financial stress, it is likely you will receive 50% for your house, clearing all your debt and leaving you with a clean slate. After that, it is a matter of re-framing your thoughts by looking at your lost property as a rental property you had just been leasing from the bank over the years.
Alternatively, if you are a property investor, a quick sell might just be the answer that can keep your other investments above board. If you are struggling to keep up payment on your ten properties, due to rent and conditions of a very tough market, then it might be wise to let one or two properties slide, so that you can maintain the strength of the rest of your portfolio. You will obviously have to weigh up the pros and cons of your current investment, see which areas are performing well, and which properties are performing poorly.
Also consider that in five to seven years’ time, the market will probably be in an upward cycle, so remember to project your estimated returns into the future. What appears as a current financial nightmare might actually turn into a lucrative investment in the future, but you might have to let go of the very average property which holds a special place in your heart.
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Story First Published in REIM (http://www.realestateinvestormag.co.za/)
