by Coert Coetzee
(Coert Coetzee is the Founder of the TREOC Group consisting out of different companies and trusts. He is an experienced Business Owner and Property Investor and shares his experience and secrets of many years.) www.treoc.com
Edition no. 159
Auctions and Rates
By Coert Coetzee
Rate Abuse
Interest rates are usually used to combat inflation, and although I don’t always agree with this, it does make a certain amount of sense. The Reserve Bank’s thinking is that high levels of debt lead to high inflation. So, pushing the interest rate up discourages people from making debt. But what the Reserve Bank loses sight of entirely is that there are two kinds of debt: good debt and bad debt.
Good debt is, for example, the bond you have on a property. I call this good debt because the house’s value increases while your debt stays the same. By the time the bond is registered, the house is already worth more than the debt. In contrast with this, bad debt includes the debt you have on credit cards, retail accounts and even cars, because the value of a car immediately drops to about 20% less than the debt after you buy it, and it’s the same with clothes and other consumer goods. This is the type of debt that makes you poorer, while good debt makes you richer.
So if the government were to one day exclude interest on bonds or unhook them from the prime rate, I would agree 100% that interest rate increases are the answer to runaway inflation. So normally I’m half for it and half against it, but what’s happening at the moment is completely wrong as far as I’m concerned. Inflation is not being driven by debt. The current inflation is being driven by the high oil price. Now I ask you, how on earth is a higher interest rate going to bring the petrol-price-driven inflation under control? I think it will have the opposite effect. It’s like trying to put a fire out using petrol.
Whatever the case, as ordinary people we have no say in these matters; the interest rate has gone up again this week by half a percentage point, and is now sitting at 15.5%. So let’s rather look at how we can cope with the higher bond repayments:
Don’t ignore the problem. It won’t go away on its own – not quickly, in any case.
Extend the term of your bond to 30 years. It will cost nothing. Just speak to the bank.
Talk to your letting agent and where possible, increase the rental.
If you are still struggling, talk to your bank and try to get a payment holiday. It might be possible to get up to three months.
If the problem is still too big, let Clive Bydawell at Treoc Property Exchange know that you are looking for a buyer. We have plenty of buyers, but remember that they’re very choosy now. But if you are prepared to sell at a price equal to the outstanding bond, you’ll immediately be rid of the problem and your reputation will be safe. As soon as the market turns, you can buy again, but then you should do so according to the Treoc Way.
If you aren’t prepared to sell the property at a lower price, or aren’t successful with this, and you can’t pay the bank, then you have only one option and that is to go and see an attorney in order to make the liquidation process as painless as possible because the banks are not going to feel sorry for you.
I have a number of trusts with properties in them. I made provision long ago for these high interest rates, and so I have no problem with the extra expenses caused by the rates. Although I’m prepared, there are limits to even my ability to pay if the rates stay high for too long. For example, I can carry a rate of 25% for two years with my current cash provisions. After that I’ll have problems too. Even if the worst happens though, I’ll never lose all my properties, because my properties are grouped in different trusts. I won’t lose my assets either, like my private residence or my vehicles, because they are debt-free and not in the same trusts as my properties with bonds. That’s just one of the elements of the Treoc Way. There are a lot more, and the Treoc Way is the reason that I and thousands of our other club members are so excited about the current market conditions. For us this is a time to buy.
I’ve noticed that all the American writers and “gurus” are now selling their American ideas and methods in South Africa. Last month I attended the seminar of a well-known American property guru in Cape Town, and I was shocked at how little he knows about South Africa’s laws and properties, and yet he actually wants to come and teach us how to buy property in our own country. And this while his methods don’t even work in his own country! If his methods worked in his own country, why would he come here to barter his information for pathetic rands, when he could be making dollars? The only conclusion I can draw is that things are looking miserable in America, very miserable!
Someone at the seminar asked this guru why he is interested in property in South Africa. His answer was that he wants to diversify his portfolio. The following words come from one of America’s true, successful gurus. Warren Buffett says: “Diversification is a protection against ignorance. Diversification is not required if a person knows what they are doing.”
It’s auction time
Interest rates are climbing, and that means different things to different people: to some it means misery and to others opportunity. Quite simply, it’s a question of whether you are prepared for it or not. A good property investor is one who can make money in any cycle of the property market, because a good property investor is prepared. During the good times we prepare for the bad times that will inevitably come, because the property market works in cycles. That’s why there is a party on the way for prepared investors. It’s our first party since 2002, when interest rates peaked at 17%. True property investors know that we are now moving into a buyers’ market, the first one since 2002.
It’s a pity that there always have to be victims, and my heart bleeds for you, but unfortunately that’s just the way it is. The only thing I can do is help you get rid of your bonds as painlessly as possible.
My investors’ club and I have been preparing ourselves for six years already for the favourable market conditions we are now glimpsing, and so we’re going to take advantage of them, whether we feel sorry for the poor people who have to sell or not. Over the past six years I’ve repeatedly promised my readers and Treoc investors that I will write a special article about auctions when it is auction time again. That time has now arrived: it’s time to expand our portfolios.
Properties that are repossessed by the banks will eventually be sold at a sale-in-execution auction. The sheriff of the court arranges these auctions. Find out from your nearest magistrate who the sheriff is in the area in which you are interested in buying, and visit the sheriff’s office. Find out how often they hold auctions and whether you can get an auction list from them. On this list they should indicate the addresses and outstanding bond amounts of the properties that are for sale. You can then go and look at the houses before the day of the auction and start doing your sums.
Remember, it is risky to buy on auction, because you could be looking at a problem property. For this reason you should do your homework thoroughly. Keep the following points in mind:
A house that ends up on an auction could not be sold on the open market. If this is purely due to oversupply, then it’s understandable and not a problem, but if it’s for any other reason, you should find out what that reason is.
Someone who hasn’t paid his bond repayments has usually not been paying his electricity and levies either. So there will almost certainly be an arrear amount, and that amount is the buyer’s responsibility. Be warned that it can be a very large amount.
If you buy at an auction you need cash. The sheriff usually requires a deposit of around 10% of the purchase price, and then his commission is usually around 7%. So you will need 17% of the purchase price when you go to an auction; these amounts are payable in cash or with a guaranteed cheque immediately after the auction.
At the fall of the hammer the house becomes your responsibility. You take immediate occupation, and you can let the house out straight away if you want.
If it’s an own-title house, you must arrange short-term insurance on the structure that same day, because if squatters accidentally burn the house down that night, it will be your loss.
Arrange with the sheriff to give you 30 days to secure bond approval. The registration of the bond can take another three or four months on top of that, and during that time the sheriff will be the financier. He asks a much higher interest rate for that period, far higher than the banks, so you don’t want him involved for too long.
The bank will also be at the auction and will always bid against you up to the outstanding bond amount. Then they’ll be satisfied, and if no other investors are bidding against you, the bid will settle on you.
Don’t get involved in a bidding war. Decide beforehand what your maximum bid will be and when it goes higher than that, stop. Just let the other guy buy it, and don’t feel regret. There will be plenty more opportunities.
Also remember that problem cases usually offer the best opportunities, because most people are afraid of problems and won’t bid against you.
As you can see, it is a bit dangerous to buy on auctions. Therefore it is better to buy the properties before they end up on auction and that is what we prefer to do. Contact Clive Bydawell if you are a Platinum members and if you are interested in pre-repossessed bargains.
RICH MIND ... RICH MAN
My new book “Rich Mind ... Rich Man” is ready. I have decided not to publish this book in the conventional way, as I did with my previous book “Let there be Light on Wealth Creation”. This book will be available in e-format and it will be entirely free, because my goal with the books and articles that I write is to share my knowledge with people and not to make money for myself. I have enough money thanks to my unique ability for making money from property and business. And in fact, it’s precisely this money-making knowledge that I am going to share with you.
But, staying true to my way of doing things “differently”, “Rich Mind ... Rich Man” won’t follow the normal e-book route. I’m going to publish the book chapter by chapter on my personal website www.lightminded.com. I’ll publish a new chapter each week. The reason for this is that I want each chapter to sink in and be properly contemplated and digested. Also, on the Lightminded website you’ll be able to comment on each chapter if you want to. These comments will be preserved and in turn they’ll become material for my next book, because there’s no knowledge greater than collective knowledge. “Rich Mind ... Rich Man” and the way in which I’m going to publish it will therefore become the research project for the next book at the same time.
The proceeds from my previous book, which was published in the usual way at a price and with a publisher, go in full to my and Vanessa’s charity organisation, the Treoc Foundation, an Article 21 company. Although “Rich Mind ... Rich Man” is free, if you feel you want to you are welcome to make a donation of any amount to the Foundation at:
ABSA Bank
Branch Code 632 005
Savings Account No. 9157 822 665
Please take part in this project and help me to let the sun shine on as many people as possible. Click on the link below to visit my book right away.
Saturday, July 5, 2008
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