The 10 Best Ways to Buy Properties Below Market Value
Below Rob Moore Co-founder at Progressive Property discusses with Finance Monthly how to buy property the correct way, how to get a bang for your buck, and how to avoid risk. There are two types of BMV properties: those that can make you money, and those that have been ignored because they are money-draining duds. This second […]
There are two types of BMV properties: those that can make you money, and those that have been ignored because they are money-draining duds. This second kind are the BMV properties that you should never buy, of course, but it’s easy to get drawn into buying something cheap which will in fact cost you far more of your time, money and effort than it is worth.
The below market value properties you want to find are those that other investors haven’t ignored, but have missed. These are the properties that have fallen under other less observant investors’ radars, and which are ready for you to swoop in, sweep up, and make huge profits on.
First off, what does “Below Market Value” actually mean?
“BMV” properties and the valuation process
According to the Royal Institute of Chartered Surveyors (RICS), market value is “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in arm’s-length transaction after property marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”
Now that’s a hell of a mouthful!
In principle, a valuer will compare the property to other similar properties in the area, alongside its estimated level of demand, transferability, scarcity, and whether it can fulfil its duties as a comfortable environment in which to live, and come up with a price estimate using this combined evidence.
Investor Peter Jones hosted a recent Progressive Property podcast on the subject, and during the episode he suggested that the current valuation system in the UK may be flawed. Peter said that the properties which valuers will compare the property they are valuing to have often been sold “with compulsion”. Distressed sellers who have a property on the market for reasons such as divorce, job loss or financial difficulties are among the reasons as to why a property may be sold through compulsion – which contradicts the RICS’s definition.
For this reason, consider the market value alongside the questions, “What price am I willing to pay for this property?” and “How much money will this property make me?”
- Make sure that it is a cash-flowing property
Not all properties on sale or that are buyable at a value below the market price are going to be great investments. Some of them are cheap as chips for a reason!
For example, it is very possible to pick up cheap, high-quality properties in rural villages in isolated parts of the UK. These could have the most enchanting views and most beautiful designs, but the likelihood of you selling them on or renting them out easily is unlikely. Even properties in apparently desirable areas can cause unexpected selling problems, such as a lack of hungry tenants or low rent prices in the area failing to cover the mortgage.
A good investment property needs to pay its own way, so make sure that any property you consider purchasing is going to be cash-flowing – or have a very good reason if you don’t.
- Do your due diligence
Without evidence for a property’s profitable potential, you’re basing your purchases on your gut and hearsay.
To find evidence of a property’s potential, put in your due diligence by visiting the property and checking out the nearby area – or at the very least, send a business partner, colleague or peer you trust. Use a property app to check the price of properties that have been sold in the same postcode over the past year. You can also check rental prices in the same area, and consider employing a solicitor before committing to a contract.
- Make sure there isrental demand
No rental demand, no tenants.
No tenants, no rent.
No rent, no money, and a big black hole where the cash you invested used to be.
To give you an idea if there is rental demand in the area for properties such as the one you are considering buying, monitor websites and apps such as Zoopla and Rightmove to check, a) how many properties are currently available to rent, and b) how often the adverts disappear and new ones appear. Too many available properties can suggest oversaturation, and not enough change in the listings can suggest a lack of demand.
- Seek out motivated sellers
Property that has been on the market a long time is likely to have a motivated seller.
On an app, such as Zoopla, check the “most recent” listing, but backwards.
If you combine evidence that similar properties are being successfully rented in the local area with the fact that the property on sale has been listed for a long time, you are likely to find a motivated seller. Any property that has not been viewed on a property website or app for a month or more suggests that the seller is going to be more open to lower offers, because the longer their property is on sale for, the more it will cost the seller.
A seller’s keenness – or even desperation – to sell their property offers you plenty of leverage.
- Advertise locally
Another way to find below market value properties is also another way to find motivated sellers, but includes the potential for finding properties that haven’t been marketed yet too, thereby accessing them before other property investors in the area.
A targeted advert can appear online, in newspapers, in newsagent windows, or even leaflets if you want to go old-school. Ideally, any adverts should appear in an area that you have already identified as a potentially lucrative spot for buying properties. If you let local property owners know that you are looking to buy properties in the area in this way, generating leads should be simple and turn you into the first point of contact for any property owner who is even tempted to sell, let alone those who suddenly find themselves pressured by unforeseen circumstances.
- Don’t take “BMV” at face value
It is hard to prove that a property is “BMV” from a technical standpoint, which is why you must consider other investment fundamentals. It doesn’t matter how cheaply you purchase a property if it isn’t going to make you a profit.
Getting price blinkers can cost you dearly, so make sure to consider your profit expectations, whether it is a short-term or a long-term commitment, how much work needs doing to the property, and so on, before getting fixated on how much cheaper the place is than others nearby.
- Don’t buy in the Bronx
Buying in the wrong area is one of the most common mistakes that first-time property investors are likely to make. Many areas may have a reputation for being “up and coming”, with plans for better transport, a new shopping centre, greater funding, and many other exciting possibilities. However, unless plans such as these become concrete – and sometimes, even if they are – they can easily fall through.
Every investment carries risks, of course, but it is your role to minimise the likelihood of loss and increase the likelihood of profits. For that reason, avoid buying property in the reputed “bad” areas of town simply because of their low price tag, unless you have some serious evidence that it is going to make a worthy investment.
- Don’t buy properties that need too much work done
Some property investors are so excited by the price that they neglect to consider how much extra work a property is going to take before it can be rented or re-sold.
If you have great builder contacts, then a property that requires some TLC can be a great way to create extra profit. However, there are risks involved when buying a run-down property, so make sure to hire a reliable surveyor to inspect the place and detail any major repairs or alterations needed.
- Don’t go through “middle men”
There are often companies and entrepreneurs that claim to be able to provide you with a range of below market value properties. In general, if you allow someone else to source your property for you, you are going to have to pay for the property itself and this person or company’s commission. There is also a question you should be asking yourself: why isn’t this company snatching up this deal-of-a-lifetime for themselves? Is it because there is a catch, and the deal isn’t as fantastic as it is being made out to be? Are there unseen structural problems that even surveyors will find difficult to identify?
For these reasons, try to avoid being taken for a ride by intermediaries and, in the process, maximise your profits.
- Don’t be afraid to haggle
The owner of any property being advertised for a price that seems surprisingly low is likely to be keen on a quick sale – otherwise, they would bump the price to a more reasonable level and wait until they found someone to pay it. This offers you some leverage that you should utilise.
Even with low prices, if you are keen to make as much profit as you can – and you should be – then make an offer that’s even lower. If they don’t accept it, you can always take them up on their original offer if the deal is hot enough.
While some argue that there is technically no way to buy BMV, because as soon as a property is sold then the market price becomes whatever it was sold for, this is splitting hairs and an unhelpful way of viewing the property market.
Buying below market value is finding a property for a lower price than other property owners are selling their own similar properties for. If you can find a distressed seller, or any property that has been overlooked by other buyers due to lack of advertising or some other neglect on the seller’s part, keep the knowledge to yourself, do your due diligence, and get ready to make some serious money.