Buying on Auction – Good Idea or not?

I think this is my most asked question these days what with the reported “bargains” abounding. Are they real?

 

I attended the FNB Auction held on Saturday morning at their “spaceship” building in Fairlands. At the advertised 9am start , there were only 12 people in the room and I wondered if there was going to be hiding given to somebody. But like good south africans doing drivers licences or paying our taxes we left it to the last minute and some 50-60 people came through.
The “investment grade” properties were scant and the quality information thereon was even scantier. I had my eye on some Buy to Let opportunities because they had the winning charecteristics;
1. high rental demand ( will I be a price setter or price taker in the rental market there?)
2.strong link to a place of employment ( is there a major employer whom people want to live close to?)
3.transport accessibilty and amentity ( is it on a major road, can taxis get there? is it close to shopping centres, schools etc?
The Akasia/Wonderpark/Karenpark area caught my attention. While a lot of the stock out there was developed and bought in the crazy days of SA’s property boom, many of the weaker/overstretched property owners have found they cant hold on and are forced to sell and in the short term capital appreciation prospects are not looking fabulous. I managed to have my bid for R 100 k accepted on a 1 bed unit. The last transfers in the complex went through at R 272 000.
I bought it after ticking off the above and the simple maths that at bond of less than R 1000 per month I would be able get a tenant in, pay the levies and still have a cash generating asset.
I think its prudent to look at auctions where you take a view of not buying at anything less than a 30% discount , just to cover you and the risks.
As with all property…do your homework.Drive the area…get to understand the dynamics. Ask agents advertising in the area for prices and rentals…do your homework. Right now its a buyers market and money is the cheapest its been in 30 years. Remember…interest rates do rise so buy with some wriggle room on what you are prepared to fund on monthly basis.