It’s often believed by many that buying a property below the market is illegal and unethical. But properties fall below their market value all the time for a number of reasons, and an investor looking for better returns is not prohibited from taking advantage. Not only does buying below market value result in immediate profit, but it also protects against losses in case of future market dips.

 

Find out how to invest in the right BMV property opportunities in this article.

 

What market value of a property means

 

A quick check on the RICS website reveals the following definition for market value: “The amount in which a certain property should exchange on the valuation date between a satisfied seller in arm’s length kind of a transaction after the marketing of the property wherein the parties had each acted knowledgeably, without compulsion and prudently.

 

What makes a house below market value?

 

Generally, a house is below its market value if nearby, similar properties in approximately the same condition have been selling at higher prices than what the seller has valued their property worth.

 

For example, if the latest sales reports in a certain street indicate buyers have been agreeable to pay between £300,000-£325,000 for two-bedroom houses, but you find an opportunity to buy a similar property in the same street for £260,000. That’s below its market value.

 

However, beware of sellers who only jerk up the price to entice you with a discount. That’s not a BMV property. A property is only BMV if it’s valued below similar properties in the same area.

 

Reasons why properties fall below market value

 

There are a number of reasons why properties may be priced below their market value. Here’s a look:

 

• The seller is looking to move properties quickly without investing in marketing efforts or doing inspections. Estate agents work on commissions, and so while most tend to watch out for the seller’s interest, others want to get their commission and move on.

 

• The estate agent isn’t accustomed to the market. They may be new in the area or operating outside their zone. Anyways, this can make them seriously underestimate the value of a property.

 

• Property is being auctioned. It’s common for a property at auction to have a reserve price the seller is prepared to accept and, when met, may be lower than the market value but good for the seller. For example, lenders may auction repossessed properties to recover their monies, which may sum to an amount below market value.

 

• The seller is under pressure and needs to part with the property fast. It could be that they want to sell quickly so they can move and settle in their dream home; it could also be because of divorce issues, job loss, or any other financial trouble.

 

• The investor has gone broke and needs to part with the property quickly; this is usually an opportunity to negotiate for many properties.

 

Buying a house for less than market value: the pros and cons

 

There are various reasons why you may want to invest in BMV property opportunities. Here are some of them:

 

• Instant paper profit: if you are looking to flip the property immediately, selling at market value will result in a decent return on investment. Alternatively, you may wait and sell after the property’s value increases, and meanwhile, you’ll be enjoying rental income.

 

• Protects against future losses if the market dips: for example, for a property bought at £200,000 but whose real value was £220,000, the market will have to dip by 10% for you to lose money.

 

• Improves cash flow: you won’t need to borrow much to invest in a BMV property, but your rental income and property management fees remain intact, meaning your net returns increase.

 

• Lower mortgage requirement because when the price is low, the amount of loan needed also reduces.

 

• Higher rental yield from the beginning: rental yield compares the purchase price with expected rental income. Because purchase price is low, but rental income remains intact, the rental yield is better.

 

There are potential problems to buying below-market value properties too. Not all BMV properties are equal. While some are sold for financial reasons or personal circumstances, some are valued for less because of structural issues.

 

Here are the potential risks to buying BMV properties:

 

• There could be reasons such as poor infrastructure, undesirable location, or hidden faults behind the valuation.

 

• Some sellers may use the BMV tag as a sales trick with no intention of giving you the property at that price.

 

• You could end up paying more if you don’t check current market valuations carefully.

 

What to look for in a below-market value property?

 

Do you like buying properties below their retail price? As an investor, you’ll quickly realise that BMV properties can be categorised into two groups. There are BMV properties that can bring you profits, and then there are those that’ll just drain your money. You’d be wise to do your homework and avoid the latter no matter how cheap they are; the eventual cost is not just worth it. You want BMV properties that investors have missed, not ignored. So, here’s how to audit a BMV property deal in the UK.

 

Do thorough inspections

 

It’s a bargain offer, but does it have profit potential? This is the kind of question a thorough inspection can help answer. Visit the property, get a good look at the neighbourhood, get a summary of expected repair costs, check rental prices and demand, etc. The goal is to avoid following your gut and make a wise investment.

 

Ask the seller how they define market value?

 

See, property valuations are often taken at certain points in time. It could be months or years. Just because the seller tells you the house is valued at a certain amount, but they are willing to accept less doesn’t make it below value. Make sure to ask for a recent valuation, compare with similar properties nearby, and factor in market conditions.

 

Don’t buy a property that’ll lose you money.

 

If you are going to invest your money in the hope of better returns, then you want a property in a good location and with just a few repairs or alterations needed. Don’t buy a property in an underdeveloped location unless there’s concrete evidence of incoming development projects.

 

Just because all investments carry risks doesn’t mean you fail to do due diligence. A property in bad shape or a ‘bad’ location may cost you more than what you paid for it. You may not even manage to get an offer on it when it comes to selling.

 

Make sure there’s rental demand.

 

This is an investment, and you want to earn from it. How do you expect to make money if there are no hungry tenants? Your property will sit empty, and meanwhile, your mortgage payments will be accruing.

 

Always ensure there’s rental demand before investing in a property. You can use data from websites like Rightmove or Zoopla; if property adverts appear and disappear faster, it means demand is high and vice versa.

 

Make sure it doesn’t require too much work.

 

Whether it’s a short-term commitment or a long-term investment, it’s always wise to compare the price with the repair costs. The last thing you want is getting obsessed with the lower price and buying a price that will cost you too much to fix.

 

An experienced surveyor help check the property for problems and detail the repairs and changes needed. If you have excellent builder contracts, a property that requires a bit of TLC isn’t bad. But if you don’t know where to begin, then such properties are not for you.

 

Where and how to find BMV property deals?

 

If you are looking for BMV property opportunities, there are strategies you can try; but it depends on the market cycle. In a buyer’s market, buyers are spoilt for choice and can keep prices low. On the other hand, decent properties tend to sell quickly or just above market value in a seller’s market. Here are ways to find below market value properties anywhere in the UK:

 

1.   Property auctions

 

Property auctions are the best places for finding below-market value properties. Here’s where sellers bring their properties after failing to attract an offer in the market. They can also be lenders wishing to recover outstanding costs and other monies from a repossessed property. Properties at auction are marketed repeatedly until they attract a desirable bid. Depending on the market, biddings can be low or higher than the seller’s asking price.

 

You can try in-person or online property auctions. Online auctions are the best because you don’t have to go check the property, plus you may be allowed up to 28 days to complete the purchase. They also allow the purchase of properties anywhere in the country. Online auctions do virtual tours of the property, and buyers can take the opportunity to estimate repairs.

 

2.   Property websites

 

You can also check for BMV properties on big online property sites such as Zoopla, OnTheMarket, and Rightmove. These usually have features allowing to filter searches using specific parameters. For example, you can set email alerts for houses branded “For Sale by Owner.”

 

Working with the seller directly, as opposed to their agent, is often advantageous. They tend to be more welcoming to creative buyer financing. You can encourage them into a faster sale by offering flexible terms of sale. For example, they may just agree to monthly payments instead of the complete payment at once. That way, you won’t have to apply for expensive loans or private money to complete a sale.

 

3.   Social Media

 

Social media site like Facebook, LinkedIn, and Twitter connects a lot of people at once. Building a buyers list and making buy and sell deals on social media is easy. With paid ads or free social networking tactics, you can find BMV deals from enthused sellers.

 

Just join your local property investing groups on Facebook or Twitter lists and begin making friends with investors in the group. More often than not, these people are eager to hear from fellow investors they can make buy or sale deals.

 

4.   Direct Mail

 

This old marketing technique hasn’t gone away even with the advent of the internet. Direct mail is trusted because it feels personal. Just create a target list of properties and send the mail. For example, if you discover a home is late on taxes, financially troubled, or up for code violations, it’ll be a good candidate for your list. Other properties to target with direct mail are those labelled vacant, in probate, or just free-and-clear.

 

5.   Advertising websites

 

You can also check for BMV opportunities on websites that put up different items for sale, including property properties. Use keywords such as “needs work“, “investor special”, “fixer-upper” “handyman special”, or “needs TLC” to find the properties you want. Advertising websites are the best for landing wholesale investment opportunities. The wholesaler can agree to let you purchase and hold, do joint ventures, or virtual wholesaling.

 

6.   Check with a property sourcer (investment company)

 

If you don’t have the time or lack the knowledge on how to source cash properties for yourself, then an investment company or property sourcer can find these deals for you.

 

A property sourcer can be a one-person operation, a small company, or a big investment company with different properties. Anyway, the advantage is you save a lot of time because, in most cases, they usually have deals that are just ready to go. They also help in the negotiation stage of the process and may progress the property through to completion on the legal side. This allows you to grow your portfolio quickly.

 

How we can help you

 

Have you made up your mind or need further chat? You can save a significant amount of time by speaking to our professionals. We are a leading property investment company in the UK with experience buying and selling properties in all conditions.

 

Whether you are looking to buy and rent, fix and flip or sell in mass, we provide great deals. We can even project-manage the renovation process if needed to get the property back on the market for rent or sale. That way, you can have cash flowing as quickly as possible and grow your portfolio.

 

Check out our website and our property deals page.