Is your property investment built on a firm foundation?

As we unpack the key criteria for success in offshore property investments, it’s useful to compare the property markets in Atlanta with those in South Africa. Buyers in South Africa have a different approach to buyers in Atlanta when it comes to the condition of the homes they buy – and who is responsible for fixing defects. Let’s take a look at these differences.

“Voetstoots” – SA’s own WYSIWYG

In South Africa, for the most part, houses are sold “as is”. We have a charming term for this: “voetstoots”. The early Dutch settlers on the shores of our fairest Cape brought the concept with them as part of the Roman Dutch legal system. The term originated from the practice of a buyer pushing (“stoten”) the sold item with his foot, implying that the buyer accepted sale and delivery without the right to complain later.

Simply put, “voetstoots” means the property is sold “as it stands.” The seller is not liable for either noticeable or hidden defects. But if the seller knew about a defect and fraudulently concealed it, the voetstoots clause does not afford him legal protection.

Atlanta’s Due Diligence Approach

In Atlanta, the process is different. Most contracts state that properties are also sold “as is” – UNLESS the sale is subject to a due diligence period. And it almost always is. What this means in practice is that the house needs to pass an inspection by an independent inspector. Moreover, the due diligence period makes the sale contract an option contract – the buyer can back out during the due diligence period specified in the contract (which, for example, may be 10, 14 or even 21 days). Furthermore, potential buyers don’t need to provide any reasons for cancelling a sale.

Home Inspectors

In our experience, buyers in Atlanta have an expectation that when they buy a home, it should be in tip-top condition. For this reason, buyers engage the services of a home inspector whose job it is to find fault with the home. These home inspectors produce detailed reports – sometimes 50 pages long – with photographs of every single flaw (or potential flaw).

Buyers then select the items they feel are most important. They will then (through their agent) direct a so-called “amendment to address concerns” to the seller. This amendment details all the items that they expect the seller to fix, at the seller’s cost (which could become very costly).

Structural Integrity – A Key Consideration

The primary focus of the home inspection during the due diligence period is the structural integrity of the property in question. And it’s a major consideration in the minds of Atlantan buyers. Structural integrity inspections look at such things as:

  • the foundations
  • damage caused due to damp and water penetration
  • HVAC (costly heating and air conditioning systems which are in every home due to the weather)
  • the overall quality of the build

Items vary from major structural issues, to termites – and even the smallest little things, that would typically not be an issue in South Africa. The amendment to address concerns becomes a negotiation between the agent for the buyers and the seller’s agent, until both parties have agreed on what will be repaired, and which items will be left as is. The seller is often expected to effect the repairs, and is usually required to produce receipts proving that:

a) the work has been done; and
b) it has been done by reputable, licensed businesses who provide warranties, if applicable.

The Risk

When flipping a home, it is vital to assess the structural integrity at the start of the project, as it could have a major impact on your renovation budget – and thus the profitability of the whole project. If you don’t address structural integrity issues – many of which may be invisible to the naked eye – these will be highlighted in the home inspector’s report. And, if major defects are revealed in a report, it could cause the buyer to doubt the quality of the overall workmanship. They may well find themselves thinking, “if they did not address these, what else, that I cannot see, have they not done or skimmed over?”

This particular risk is thus that if you take on a renovation project it without understanding this process and the buyer culture that underlies it, you might lose a lot of money when presented with the amendment to address concerns.

How YDL Makes This Work

Years of experience in the Atlanta property market have equipped us with the on-the-ground insight that ensures we minimise the risks outlined here.

We send a top quality home inspector in before beginning any flipping project.

This inspector does a full report on the property, which we hand to building contractors bidding to get the renovation project. We agree with them what should be included in the rehab quote, and which items are unlikely to be showstoppers. The cost attached to fixing all these issues is a factor in deciding whether or not the project is worth the investment. Furthermore, this means that there are far fewer surprises at sale time. It’s also a whole lot better than doing the overhaul, but having no real idea of what you may be in for in terms of cost to meet the defects highlighted in the inspection report of the buyer.

Lucrative Investment Done Right

Property investment is a wise way to develop an offshore hedge against currency fluctuations. And it can be a very profitable route to take. But no one ever said it would be easy. YDL has decades of on-the-ground experience at the coalface of property investment. Let us save you the headaches that so often accompany property flip projects. We’ll manage your investment for you, and target healthy returns to boot.

Email Anton

Call me on 011 465 7356, or email anton@ydl.co.za. Make sure that your off-shore property investment is built on a sound foundation.

Warm regards,
Anton