“Owning a home is a keystone of wealth… both financial affluence and emotional security” (Personal Finance Expert Suze Orman)
When you buy or sell your “Home Sweet Home”, and/or an investment property, particularly for the first time, the process can seem complicated, the terminology confusing, and the risks of making a costly mistake intimidating. You are after all dealing with quite possibly your most important asset/s!
Of course, to start off with you need to decide where property is going to fit into your investment portfolio. Ask yourself these two questions –
- Should I own my own home?
This boils down to the old debate “is it better to buy or to rent?” There are many arguments on both sides of this coin and many factors to consider – not only are each person’s circumstances different, but the answer may well change over time depending on your finances and savings at the time, the state of the property market, bond rates, available alternative investments and so on. Professional advice is essential here.
- Should I buy-to-let in the current market?
Buying-to-let can be an excellent investment channel, and for a whole host of reasons this time of pandemic and disruption has opened up an abundance of buying opportunities to prospective landlords. Just don’t rush in blind – choose the right property in the right area, go into the process with your eyes fully open, and in particular beware the common pitfall of failing to minimise your risk of having to fight a difficult, destructive or non-paying tenant. Residential property occupiers enjoy strong protections against eviction even in normal times, and these protections are even stronger for the duration of the National State of Disaster. Moreover there are reports of more and more tenants struggling to pay their rent and/or unable to afford annual escalations – factor those risks into your decision making.
It is essential also to understand the impact of the Rental Housing Act on the landlord/tenant relationship – do you know for example the specific requirements around rental deposits and joint property inspections? “Ignorance of the law” is no excuse, and non-compliance could cost you dearly.
Again, professional advice is essential here.
Your decision made, let’s move on to helping you navigate the actual process, as either seller or buyer. Here are some more common questions, with answers.
- Where can I get a simple guide to the process?
When you come down to the details it certainly is important to get everything right, but a simple, broad overview to start with will go a long way to de-mystifying the process and to setting you safely onto the right path.
Have a look at the Law Society of South Africa’s “Buying or Selling a House: What You Need to Know”. Download it in any of four languages here.
Simply and clearly written, the guide is full of really important information and advice, both practical and technical – take the time to read it in depth!
Turning now to a few of the other more common questions you will no doubt have…
- Do I really need professional advice?
Our law reports are full of court disputes that could have been avoided with a simple upfront request for advice. The danger of not doing so is that many pitfalls await the unwary and you will be held to anything you agree to. It’s only sensible therefore to take advice early – well before you appoint an agent, start looking for a house, or get involved in submitting offers and negotiating sale agreements.
Not having your “offer to purchase” or “agreement of sale” legally checked is a recipe for disaster. Once you sign on the dotted line you are on the hook for everything in the document. With very limited exceptions our law holds you to your signature and it is no good saying later “But I didn’t read the document, it all looked like the normal standard stuff” or “I had no idea I was agreeing to term x or condition y” – tough, you are bound.
Ask your financial advisor to recommend an attorney you can chat to before you do anything else!
- Whose name/s should I put the property in?
Should you buy the house in your name or in your spouse’s name? Should you buy jointly? Does it matter what marital regime applies to your marriage? What if you are in a permanent cohabitation arrangement rather than a formal marriage? Or perhaps you are wondering whether you should put the house into the name of a company or family trust.
Your choice now will have far-reaching tax, legal and practical consequences; and with some complex areas of tax and law involved, specialist upfront advice is a no-brainer.
- What else should I ask?
Common areas of dispute and litigation include “bond clauses” and “72-hour clauses” in sale agreements, confusion over the need to identify or disclose both visible and invisible defects, disagreements over what is a “fixture” that comes with the house and what isn’t, misunderstandings over neighbours’ rights to build and encroach on views and the like, not checking for building plans and municipal Certificates of Occupancy (you will have a problem if a previous owner built or extended without proper plans), not checking the zoning and title deed restrictions (which could put a damper on any plans you have to extend, go up a storey, build a home office, or the like), servitudes or other rights of use over the property, limited “home business” options and so on.
(Tip: Take lots of “before and after” photos of the house and property with your cell phone – a dated picture is hard to argue with!)
Other “homework” items to ask about – what paperwork you will need (do you know where your title deed is?), how long your particular transfer is likely to take (and a linked question “what date of occupation should we agree on?”), to whom deposits and any occupational rental must be paid (and who gets paid the interest earned on monies held in trust), what compliance certificates you need, how to find the best bond rates, whether you might qualify for a FLISP (Finance Linked Individual Subsidy Program) subsidy, how to cancel and open municipal service accounts, the rights of any occupiers (not just tenants, also “unlawful occupiers”), and so on – you will have your own list.
- What about planning my finances?
Seek professional advice to help with this and get from your lawyer a breakdown of who will pay what and when. Think deposits, bond and transfer costs, transfer duty, agent’s commission, bond settlement balances and so on. Cash flow forecasting, and a clear understanding of the timelines involved, are critical here to avoid unpleasant surprises down the line.
As a buyer, factor into your “affordability budget” not only bond repayments and your projected regular monthly costs (rates, services, insurance premiums, security costs etc) but also an emergency fund to cover any unexpected costs that may crop up.
On the subject of finances, cyber-fraud is a growing issue when it comes to electronic communications and payments so agree with your lawyer on measures to ensure that neither of you falls victim. Fraudulent “here are my new bank account details” emails are flavour of the month, but the scams are constantly evolving.
- Who appoints the conveyancer and why do I need one?
In a nutshell, you need to appoint a specialist lawyer (a “conveyancer”) to pass transfer of ownership from the seller to the buyer in the Deeds Office. That’s because only on registration of the transfer does the buyer become the legal owner of the property.
As a seller, insist on choosing the conveyancer – ask for professional advice to help you pick a firm you can trust to act with professionalism, integrity and speed.
- What about buying into a complex?
Owing a house and living in a community scheme come with substantial benefits, just understand exactly what you are letting yourself in for both on a practical level and in regard to the various rules and regulations you will be agreeing to.
Our courts regularly have to sort out bitter (and unnecessary) disputes around owners desperately – and almost always unsuccessfully – trying to get out of complying with body corporate and Home Owners Association rules. Common areas of complaint are home businesses, pet ownership and control, vehicle parking, noise, nuisance objections and the like.
- What records and paperwork should I keep?
One thing is certain – the document you don’t keep on file is the one you will be desperately searching for in 10 or 20 years’ time! So when in doubt about a particular item keep it, but at the very least have a file (backed up electronically) with –
- Your title deed (also called a “deed of transfer”) from the conveyancer. If your property is bonded the bank will keep the original in which event keep a copy plus a note as to which bank has the original. If you lose your title deed you can get a copy but there are delays and costs attached which you really want to avoid when you come to sell again down the line.
- The full signed agreement of sale and annexures,
- The conveyancer’s final statement of account and associated invoices,
- All bank loan and bond documents,
- Your municipal Certificate of Occupancy if you undertook any building work (construction, renovations, extensions etc),
- A running list with supporting documents of all tax-relevant expenses. For example, keep a running Capital Gains Tax schedule with –
- A list of expenses relevant to the house’s “base cost” (purchase price, transfer costs and legal fees, bond costs, agent’s commission, costs related to the sale or purchase like advertising, architect’s fees etc) and
- Ongoing capital expenses i.e. improvements and renovations (but not repairs or maintenance).
- “Before and after” photos of the house and property,
- Ask your advisors if there is anything else you should keep relevant to your particular property and transfer.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.