So what should be classed as below market value.
We believe true BMV property offers instant equity without further investment in the fabric of the building. This type of deal occurs when vendors are looking for more than just the monetary value from the sale. They may be looking to
- Remove the responsibility and stress of owning the property
- Remove the running costs of the property
- Release cash quickly for an immediate need
In almost all cases of BMV sales, timescale will be a major motivating reason behind the quick disposal, normally occurring due to:
Obviously these are all extremely testing times and care needs to be taken when dealing directly with vendors in these situations.
In some of these cases such as divorce and debt it is possible to pick up a property which needs very little work and could be instantly placed on the lettings market. But accessing the margin from the BMV purchase still faces the challenges we discussed earlier.
The quickest way is to purchase the property with cash and then remortgage in six months. Six months is the period most mainstream lenders observe before allowing finance to be raised on a purchase. If you opt to do this be prepared and have evidence as to why you were able to purchase under the normal value. It also helps if you have comparable sales evidence at price levels you are claiming.
How to find BMV deals
BMV property is out there and great deals are done every day creating equity and boosting yields. Most below market sales do not need the coverage offered by mainstream portals. Instead these deals are done via a sourcing agent or simply by knowing your area and learning when to recognise a possible opportunity. Search ready sourced BMV Deals
Estate Agents can also be a great source of deals and I recommend you make it clear to your local agents when you are in the market for new deals. Build up a relationship with the team in the office and always provide feedback whenever you view a property.
Enlist the services of a sourcing agent and let the deals come to you. Property sourcing agents know how to spot opportunities and will normally have the relationships with the local agents. They may bring a lot of trade price deals to you which as we discussed earlier are still great investments. Finding an agent in your chosen investment area to work with is a great strategy especially if you are looking for multiple deals.
A sourcing agent will give you back your time and should be able to bring you many more BMV opportunities than if you tried to do the sourcing for yourself. If you are considering this route we have a directory of agents by region. It is important to do your due diligence on an agent, especially before parting with any money.
Find agents sourcing property for investors in popular areas of
Property Sourcers London
Property Sourcers Manchester
Property Sourcers Birmingham
Trade Price Property Vs BMV Deals
Trade price deals are easier to find and easier to refinance. This is because you will have evidence of the money and work that has gone into developing the property after the initial purchase.
The down side is you do need to actually do the work. You also need to be good at estimating the cost of the work involved and have the teams in place to carry out the renovation.
True BMV deals created instant equity upon purchase without doing any work at all.
But the downside is releasing the profits is more difficult and may take more time.
Which type of property deal should you concentrate on?
The answer to this is whatever fits your own overall strategy and capital allowances. If you have the ability to refurbish property and create equity I would concentrate on using other metrics to measure the deal.
For example let’s look at a two scenarios, while looking at these I will assume the goal is to conserve capital to grow a portfolio of residential rental properties.
Worth an estimated £100K on the open market being sold quickly for 20% BMV costing you £80k and netting you equity/profit of £20k
Worth an estimated £100K on the open market being sold through an advertised deal for £65k. Requires £20K worth of work taking no more than 4 months
There are comparables to justify the £100k potential value and you will photograph the property before. You will also keep documented expenditure records.
The risk with property 1 is that you are only able to refinance at the purchase price of £80k and with a 75% mortgage that would return 60k of your capital and leave a potential 40k in the deal.
If property 2 goes to plan you should be able to achieve the valuation of £100k at month six and have £75k returned by way of a 75% LTV mortgage. This property also has its risks as even with the evidence the lenders could take some persuading. There is also the chance that the work costs more than you expect and erodes your margin.
Hopefully you now have a good idea of what BMV is and how to find more deals. From looking at the scenarios I hope you agree that investors should focus on more than just the percentage of discount. As this figure alone is not enough to warrant a purchase or the ruling out of a deal.