MASTERING THE PROPERTY DEAL
If you’re going to take the property investment journey seriously, you’re going to submit many offers to purchase (OTPs). Once you have submitted an OTP, you’ve signed a legally binding contract, and this is where property investment becomes real. Each OTP requires careful thought and strategy to ensure your property purchase aligns with your long-term goals.
So, before you submit your next OTP, here are 12 guidelines to remember:
1. The OTP Should Be in the Name of the Entity in Which You Are Planning to Purchase the Property
Always ensure that the OTP is in the name of the entity that you plan to use for purchasing the property. It is advisable to purchase property in the name of a property company with a holdings trust holding the shares of the property company. As a property investor, it’s generally not wise to buy properties in your name, as this exposes you to risks, including personal liabilities and tax inefficiencies. Proper structuring from the beginning ensures asset protection and better future financing options.
Read our article, Should You Buy Property in Your Name, a Company or a Trust?.
2. Always State That You Will Obtain 100% Financing from the Bank
The less of your own cash you use, the better the investment. Specify in your OTP that you intend to obtain 100% financing from the bank. This allows you to keep your capital free for other ventures. If the bank does not offer you 100% financing, you can still decide whether to proceed by putting down a deposit. However, including this in the OTP gives you the leverage to walk away if the financing is not favourable.
Watch our YouTube video, How to Get 100% Financing.
3. Utilise the Finance Clause to Your Advantage
The finance clause is a powerful protective measure. As made famous by Dolf de Roos in Real Estate Riches, the finance clause states, “This offer to purchase is subject to and conditional upon the purchaser arranging financing suitable to itself.” This essentially means that if you can’t arrange financing on terms that are favourable to you, you are not obligated to proceed with the transaction. Always make sure this clause is included.
4. Use a Property Inspection Company
If you are unable to view the property in person, or if you have concerns about structural integrity, bring in a professional property inspection company. This is especially important when purchasing older buildings or properties from distressed sales. Moreover, this can serve as a negotiation tool, as any issues uncovered by the inspection may allow you to negotiate a lower price or have the seller make repairs. Insert an inspection clause: “This offer to purchase is subject to and conditional upon an inspection approved by the purchaser within 5 days of signing.”
5. Insist on Using Your Conveyancing Attorney
When it comes to transferring property, the choice of a conveyancing attorney can have a significant impact on costs and service. Insist on using your own conveyancer instead of the seller’s. Your attorney is more likely to prioritize your needs and ensure the process goes smoothly, while also negotiating lower fees for you. This can save you thousands of Rands.
6. Ensure the Property Description Is Accurate
Check that the property description on the OTP is correct and matches the actual property you intend to purchase. Whether the property is a freehold or sectional title, make sure all the relevant details are accurately filled in, and any unnecessary sections are crossed out. The smallest error can create confusion later on, so always double-check.
7. Verify Levies and Rates
If the OTP provides for it, ensure that the levies, rates, and taxes communicated to you are correct and that you’re comfortable with them. Unexpected increases in levies or municipal rates can impact your cash flow and affect the profitability of your investment. Be proactive in obtaining confirmation of these figures from the seller or their agent.
8. Remove Unnecessary Sale of Second Property Clauses
In most OTPs, there may be provisions for the sale of a second property to make the transaction viable. If this is not applicable to your situation, make sure to cross it out. Leaving unnecessary clauses in the OTP can create confusion and potential legal issues down the line.
9. Ensure Occupational Rent Is Market-Related
Occupational rent is the rent paid by a seller (or buyer) if they occupy the property after the OTP is signed but before the transfer is finalized. Ensure the occupational rent is market-related—whether it’s in your favour or the seller’s, you want to ensure fairness and avoid unnecessary costs. If the seller wants to stay on the property after the sale, ensure the rent covers your bond repayment and any other associated costs.
10. Clearly Define Fixtures and Fittings
Fixtures and fittings can cause disputes if not clearly stipulated. Be specific in your OTP about which fixtures and fittings—such as light fittings, appliances, or blinds—are to remain with the property. Anything that isn’t nailed down should be agreed upon in writing. A common mistake is assuming these items come with the property, only to find out after transfer that they’ve been removed.
11. Set a Reasonable Time for the Offer to Be Irrevocable
Give the seller a reasonable time frame in which the OTP remains irrevocable—typically three to five working days. This allows you some flexibility if you need to submit multiple offers on different properties without locking yourself into any single deal for too long. However, don’t leave it too short, as the seller may feel pressured and reject your offer altogether.
12. Complete the Information Sheet and Include Supporting Documentation
In most cases, the agent will request an information sheet where you need to enter your personal details and submit supporting documentation, such as proof of funds or pre-approval letters. Ensure you have all these documents readily available to avoid delays. Having everything organized shows that you are a serious buyer and can sometimes give you a competitive edge in a multiple-offer situation.
P.S. Be Prepared to Walk Away
No matter how emotionally attached you become to a property, always be prepared to walk away if the terms don’t suit your investment strategy. Investment decisions should be based on numbers and logic, not emotions.
By keeping these guidelines handy and applying them diligently, you’ll soon become an OTP-completing machine, ready to build your property empire with confidence and clarity!
Watch our YouTube video, 12 Guidelines to Submitting an Offer to Purchase.
Read the entire article in the October Edition of Real Estate Investor Magazine.