For homeowners, the fear of having their property repossessed is undoubtedly a nightmare. As the economic climate continues to fluctuate, distressed properties serve as a cautionary tale, highlighting the impact of changing interest rates and the rising cost of living. However, for savvy investors and those eager to step onto the property ladder, distressed properties can present a unique opportunity to secure a highly favourable deal. To make the most of this opportunity, it is crucial to approach the process sensibly, fully understanding the pros and cons involved.
Understanding Distressed Properties:
Distressed properties encompass three main categories: sales in execution, bank-mandated sales, and properties in possession. Each category represents a different purchase process and offers distinct benefits for buyers, while signalling that the seller has reached a point where they can no longer meet the property’s repayments, leading the bondholder to seek recovery.
1.Sale in Execution:
In a sale in execution, the bank initiates the process after a borrower persistently defaults on bond repayments. If the debtor’s moveable assets fail to cover the arrears, the property itself goes up for auction. The bank sets a minimum reserve price for these auctions, ensuring properties are not sold for unreasonably low sums. Successful bidders must pay a 10% deposit plus the sheriff’s commission immediately after the auction.
2.Bank Mandated Sale:
In a bank mandated sale, the bondholder voluntarily hands over the property to the bank for sale due to an inability to meet monthly repayments. These sales are generally priced at more realistic market-related rates. The bank appoints an estate agent to handle the sale, and the seller reserves the right to decline an offer if it does not meet their expectations.
3.Properties in Possession:
If a property does not sell at auction or through a bank-mandated sale, the bank itself may repurchase it, turning it into a property in possession. Offers on these properties are made to the bank via an appointed agent and are subject to the bank’s discretion. Repossession is a last resort for banks, and they may be more open to reasonable offers.
Pros and Cons of Buying Distressed Property:
- Opportunity to find exceptional bargains in potentially unaffordable areas.
- Favourable terms, including preferential borrowing rates and no transfer duties (transfer fees are still payable).
- Potential for quick returns on investment if the property can be flipped and sold at market prices.
- Properties are sold as-is, which may include neglect from previous owners who struggled with repayments.
- Viewing properties may be restricted due to current owners or tenants.
- Offers cannot be subject to financing or the sale of another property.
- Transfer of distressed properties may take longer than a standard house purchase.
- Buyers may be responsible for outstanding levies, rates, and taxes.
Tips for Buying Distressed Properties:
- Work with a professional real estate agent affiliated with major banks to access distressed listings.
- Conduct due diligence, researching property prices and trends to make an informed decision.
- Obtain a Seller’s disclosure document to learn about any known defects in the property.
- Conduct a thorough inspection of the property before making any purchases.
- Be aware of any outstanding levies, rates, or usage restrictions that could affect the purchase.
While purchasing distressed property requires careful consideration, it can offer an excellent investment opportunity for those well-informed and prepared. With the right advice and knowledge, you can navigate the process successfully and make a prudent investment decision.