When investing in property, whether as a developer or as a landlord, you will want to maximise your purchase to get the best possible returns.
And one way you can get a head start is by buying below market value (BMV) as this provides you with a buffer against possible future price falls and could mean you have some capital growth in hand even before you start letting the property.
There are many companies which will try to tempt you with BMV deals but these very often turn out to be too good to be true. And it is perfectly possible to find below market value properties for yourself, if you know where to look.
The most obvious reason for a property being sold for less than it is worth is for a quick sale, and this is where, if you are a cash buyer, you have the advantage as you are in a position to offer a speedy purchase in return for a discount.
A quick sale may be required due to repossession or divorce, the owner may be moving into a care home or may have inherited the property from a relative and want to divide up the estate as quickly as possible.
But not all reasons are unhappy ones; the seller may be relocating – possibly abroad – or may simply have found their dream home and not want to risk their purchase falling through.
If a property has been for sale for many months, the vendor may be getting desperate and more open to offers. You can find these by searching on Rightmove and sorting by ‘oldest listed’. Make sure you do your research to find out why the property has not sold and that the reason is not something which will make it a bad purchase.
With lenders demonstrating more caution since the recession, there are certain properties which can only be sold for cash as they are unmortgageable. These can include properties of non-standard construction, homes without a kitchen or bathroom, subsidence, leasehold properties with a short lease, and those with a Japanese knotweed problem.
If the problem is something which can be resolved, if you are a cash buyer, this means you could buy at a discount, fix the issue to make the property mortgageable and thereby increase its value. But it is important to calculate the costs carefully to ensure it is worthwhile.
The keys to finding a BMV property are patience and persistence. Be prepared to do your research, explore many avenues and wait for the right deal to come along. Possible sources include:
Build up a good relationship with your local estate agents. Remember though, they have a duty to get the best price for their vendors, but they will appreciate knowing you are ready and waiting to invest at the right price, especially if they have a seller who need to move quickly.
Even repossessions are sold via estate agents, although they may be sold via auction when the market is not so good. The important thing to know about repossessions is that the lender is obliged to get the best possible price for the vendor whose home is being repossessed, so you still need to offer a fair price that the lender can justify accepting.
There are several ways you may be able to maximise your profit at auction but make sure you always do your research about each property you bid on and don’t stint on getting a survey or the legal work you need doing before the auction or you may find your “bargain” turns out to be very expensive.
Some ways you may be able to maximise profit at auction:
|Buying at auction - Auction Trade|
Other local experts you could get to know include legal companies and financial advisors, who may know of vendors who need to sell quickly, and developers. Large housebuilding companies will have their own part-exchange schemes but small and medium sized companies may have buyers waiting who need to sell their own home first. You may be able to buy their home at a discount funded by the developer to enable them to move into the new build.
Be pro-active and advertise for sellers. Be sure to target the area you are interested in and try online and traditional routes (local paper, shop windows) as well as leafleting through doors and seeking out the owners of empty properties.
As previously mentioned, buying at below market value requires patience, persistence and research. It may require you to look at more than 150 properties, checking what they were originally sold for to see if deal can be done. This might mean analysing in detail and visiting 50 properties, working through each one to see which ones will offer you a deal that works.
One thing you must do is familiarise yourself with market values in your chosen location. Only by learning what properties are actually selling for – rather than being marketed for – can you learn about their true market value and what represents a genuine BMV purchase.
Other things to note:
|How to buy below market value checklist|