Investing in property is one of the best ways to build wealth. The key to success in this business is to know how to buy below market value properties. This will help you build wealth and be financially free. But what is a below market property?
A below market property is a real estate investment that is being sold for below market value (BMV). This can be due to a variety of reasons, such as the owner needing to sell quickly or the property being in poor condition.
Below market value properties can be a great investment opportunity if you know how to find them. These properties can be found in a variety of ways, such as through real estate agents, online listings, or by contacting the existing owner directly.
It’s important to note that not all below market values are good investments. Before you buy a property, make sure that it’s actually worth more than what you think it is – otherwise, you could end up losing money on the deal.
What are the benefits of investing in below market value properties?
Consider BMV properties as hidden gems; every property investor in the area will be looking out for them because of the benefits they offer.
BMV properties offer greater ROI: The nature of a BMV property is that it is priced lower than the market would expect, which means you pay less than a similar house in the same area. Once you’ve finished renovating to bring it up to a similar standard as other properties in the same area, you’ll be able to rent/sell it at market value, which should give you a decent return on your initial investment, one that is higher than if you’d paid the full expected market value.
BMV properties offer reduced risk: Due to their lower initial price tags, BMV properties are less likely to experience major fluctuations in value, protecting your investment.
BMV properties are ideal for investors: They’ve usually been priced low to sell quickly, and as investors usually don’t have a chain to slow down the sales process, it means they’re especially attractive buyers. In some situations, such as it being an inherited property, the seller doesn’t have a chain either.
Lower price = lower mortgage: Since BMV property prices are lower than competing properties, it follows that your loan requirements will also be lower.
So, these properties can offer better potential for capital growth, reduce risk, lower loan requirements and provide investors with the opportunity to grow their portfolio to create a steady passive income.
How to find below market value properties in the UK?
Given the benefits on offer, it’s no surprise these opportunities can be tricky to find. The best way to approach this is to immerse yourself in the property market in your chosen area, developing an estate agent like knowledge of what’s for sale and what you get for the price.
Estate agents have the benefit of doing this every day; they’re immersed in valuations and viewings. The process for the rest of us is research and analysis.
- Do your research: Spend time doing your research to understand the current market conditions. What are the list prices, how do they compare to the final sales price, what type of property and in what condition do you get for your ideal budget?
- Look for deals: Many times, below market value properties can be found in repossession situations where the seller is willing to take a lower price than they would normally receive. Be prepared to negotiate hard and be willing to put in a lot of effort if you want to purchase a property at a discounted rate.
- Have an eye for detail: When looking at a property, make sure to focus on the details such as the condition of the exterior, roofing, windows and doors, appliances and fixtures, etc. This will help you determine if the property is worth investing in or not.
- Get pre-approved: Before making any investments, always get pre-approved from your bank so you know you can move quickly when you find the right opportunity.
- Be prepared for repairs & updates: Some BMVs will be low-priced due to the poor condition they’re in, often requiring more work than other homes in the same location. Make sure to take those costs into account when calculating your budget.
- Be patient: It can take some time to find a good BMV property, but the reward could be worth it!
When researching you can look online, in newspapers, in online classifieds or even register your interest in BMVs with local estate agents.
Once you gain a clear picture of pricing in your chosen area, and what you get for the price, you’ll be able to spot potential BMV properties quickly; it’ll stick out from the norm and be worth investigating further if it falls in your target price range.
You shouldn’t just consider the initial purchase and renovation cost; you need to think long term and think about factors such as location, size, and potential upgrades or improvements that you could make to the property.
Many looking for a quick sale will go down the property auction route, which you can learn more about in this article: Is It Worth Buying Auction Property?
How to assess the potential of a below market value property
To assess the potential of a below market value property, you need to understand its condition and what needs to be done to make it liveable.
Where most people will look around a potential property and think of how they’ll make it their perfect home, you need to take a more detached view. When you purchase your own home, you can take years to redecorate and address issues such as getting a new bathroom or kitchen.
When investing, all those issues need to be dealt with ASAP to ensure it’s fit for market. You can learn more about this process in Property investment for beginners.
Some areas to consider when assessing a property:
Check for quick wins: If the site is one inherited from an elderly relative you might find a lot of quick wins can be had from a simple renovation that redecorates and brings a fresher, modern, feel.
Check for damage: Look for any signs of damage that will need repairing, for example broken windows, cracked walls, or damaged surfaces.
Check for structural problems: Inspect the property for any major problems such as water infiltration or structural instability. This isn’t always something you’re able to do yourself, especially if you’re new to the business, so spending a little cash on a home survey can be a very good investment if you’re seriously considering making an offer.
Compare to other local properties up for sale: Make sure to research the wider market, so you know what else is available in the same location, for rent and for sale. This will give you a great idea of the potential opportunity available.
How to negotiate the purchase price of a below-market value property?
Once you have found a below-market property that meets your investment criteria, it is time to start negotiating with the seller. The goal is to get the best possible price for the property.
Here are some tips on how to do that:
- Qualifying sellers: Not all sellers will be willing to negotiate. You need to find out if the seller is motivated and open to negotiation by asking them questions about their situation and why they are selling. If they are looking to move quickly, you’re in a good position.
- Making an Offer: Start low when making your initial offer, but be realistic, if you go in too low, the seller will likely reject your offer outright and may not want to deal with you further. Be prepared to back up your offer with comparable sales data so that the seller knows you are serious about buying at that price (this is one of the key reasons to do your research).
- Countering: Always leave yourself some room for negotiation by countering any offers from the seller with a higher but still reasonable number. Ultimately the key here is not to overpay for a below market property, no matter how good of a deal it seems at first glance.
Remember, the goal of negotiation is to come to an agreement that everyone is happy with. You’re far more likely to have an offer submitted if you can provide the reasoning behind the offer, which is why it’s important to research the area you want to buy in.
When you know what the average price is for houses in that area and what you get for your money, negotiation becomes a lot easier.
What are the risks involved in investing in below market value properties?
There are always risks when it comes to investing. Aside from the usual risks you get with any property deal I find the main one with BMVs is one of tunnel vision: You become so obsessed with finding one of these golden needles in a haystack that you miss out on other opportunities.
While it’s great to find these opportunities you shouldn’t close yourself off to the market in general. Given the extra work often associated with them, you might actually find it’s quicker to market if you pay a little more and have less renovation work to do.
What are the exit strategies for below market value properties?
It might seem odd to be considering selling somewhere you haven’t even purchased, but having a long term plan is very important.
Some people choose to renovate and then sell the property quickly, known as flipping, while others choose to rent it out, enjoying a regular income for many years before eventually selling.
I personally prefer to rent and hold on to the property. Not only do you earn money by renting it, but holding for longer will likely see a greater increase in the price of the property.
The most important thing is that you find an exit strategy that works best for you and your situation.
A property below market value is a rare thing to find as the circumstances leading to that particular pricing strategy are often uncommon. It could be due to personal reasons, for example dealing with inherited property, or perhaps the property owners are in financial difficulties, and they need a quick sale to free up cash.
Whatever the reason for the price reduction, you have an opportunity to add a new investment property to your portfolio, helping to build up the amount of rental income earned each month.
Remember there are no guarantees, you should approach these with the same caution you would when viewing any other properties for sale.