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BELOW MARKET VALUE PROPERTY!!!


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Hi All,

I have some BTL property and recently purchased my residential home and paid massively over the ‘offer over’ listed price. I felt like I simply had to in order to secure the property as I like many others I had been looking for so long and lost out on so many properties as my offers just weren’t high enough. This time I had to blow everyone out of the water to secure it.

I’ve been told it was a crazy move and I’m mad mainly by people who say they only buy ‘Below Market Value’.

I’ve heard a lot of BMV talk and read up about it a lot. I definitely know people who have bought BMV too, (400k/450k properties for 300k/350k) but the way they have done this is by bribing the estate agent who has then lied to sellers saying it’s the best offer they have had etc. I dislike this massively for a whole host of reasons (conning people out of their home/life savings being the key reason).

BUT I can’t see how else BMV is done. I cant see anyone willing to sell their home, the most expensive thing they own and usually their plan for retirement at 20/25% discount). Unless there is the very rare situation of needing the money so desperately and doing a cash deal as its quick. I don't believe that is so common so many people can buy BMV. Also the people I know buy via a mortgage anyway so timewise its the same as a normal sale. 

Is there anyone who can walk me through a (non bribe) deal they are doing from end to end that is BMV? I don’t want the deal, just want to see how it works from start to finish.

I am based in West London and Wiltshire if that helps.

Thanks

AL

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You're right to trust your logic and instinct here. The fact is, there's no such thing as BMV or below market value deals, it's just a marketing tactic.

The definition of "market value" is the price somebody is willing to pay in that current market. For example, if you think a property is worth £400k (or somebody tells you it's worth £400k) but the highest anyone is actually willing to pay at that time is only £300k, that makes the market value £300k, regardless of what anyone tells you. If a property was genuinely worth significantly more than the sale price, logic says that the seller would have sold for that higher "market" price.

There are situations where a discount can be achieved, but this isn't necessarily "BMV". There is always a reason why a seller is accepting a lower price and so if you can't see what that reason is, you probably don't have a deal and it was probably overpriced in the first place.

As an example, some sourcing companies will achieve a discount by agreeing a lower price to sell in volume. This would typically be a new block of apartments where lots of units complete and hit the market at the same time, at which point there is an initial oversupply, so more units are available than would be required to satisfy natural market demand. The developer might then agree to sell in volume at a discount rather than wait longer for them to sell at "full market value". However, this is only possible because of market conditions at that particular point in time. Once the extra supply is absorbed into the market, the discount would no longer be possible because there would be less availability. This is an example of where a discount is possible, but it's because the market is lower, not because the price is below market.

You might also be able to negotiate a discount because you can help a seller in some way such a speed or certainty of sale. However again, this depends on the market. If demand in the market is high, the chances are that the vendor won't need to offer a discount because there is enough competition from other buyers. In a slow market where demand and competition among buyers is low, a bigger discount could be negotiated, but again that isn't BMV, it's just that the market is lower.

On the purchase of your own home and paying well over the asking price, I would say this isn't necessarily a problem if it's a place you're intending to live long term. Obviously it would be better to purchase at a lower price, but your home is a place you need to feel happy living, so you can't just look at it as an investment. It's no different to anything else you buy that you lose money on (cars, meals out, holidays, clothes, etc) -  you could always have paid cheaper, but we still buy for the experience. If you plan to live there long term then over time you'll make back any extra that you paid as the market grows (and if you're not planning to stay long term then you shouldn't really be buying at all).

I hope that helps to put your mind at ease.

Chris (www.fintentional.co.uk)

Chris Hancox

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Thank you for your response Chris. 

Re paying over the odds for my home - I had a meeting with a local agent earlier about another matter and he knows my street and house I purchased and stated he would be confident to sell it for about 12% more today (only been here 9 months) but also I am planning on being here for a significant time which as you said then doesn't matter. 

Re companies securing blocks of apartments in bulk, I have come across that too, where it's allegedly '10k BMV' (for a 120k apartment) but they charge a 5k fee to sell to you 🤣 can't believe the number of people that go for that.

Any further responses are also appreciated....ideally the elusive BMV deals....

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With regards to paying over the odds, I also should have mentioned that if you are using a mortgage, the lender would require a valuation survey. If it was really over the odds, you would get a down-valuation, which would mean either putting in a higher deposit or being unable to afford the mortgage. As such, the valuation can also be a sense-check as to what you are paying. In any case, it sounds like you've paid a fair market value if it would sell for 12% higher only 9 months later.

Chris Hancox

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1 hour ago, Always Learning said:

Any further responses are also appreciated....ideally the elusive BMV deals....

I'm going to flip your question on your head. What you want is a property that will go up in value? There can be loads of reasons why this happens:

  • You pay a low price in a down market (e.g. covid)
  • You buy in a location that is primed for growth
  • You buy in a period of economic growth
  • You buy into a property sector primed for growth, e.g. warehouses over the past few years

Personally, I would focus on 3 things:

  • Which location is primed from growth
  • Which strategy is best for you
  • Choose the right property structure

My two cents:

  • Don't invest in BTLs in West London! SDLT in £30,000 for a £500k property. In West London, that **might** get you a garden shed!
  • I personally like commercial. Yields of 10%+ are easily obtainable. SDLT is much lower for commercial
  • Think seriously about investing with a ltd co. Corporation tax of 19% vs up to 45% income tax

I have a blog with tons of free articles where I talk about these ideas in more detail. Link here

I'm not sure searching for elusive BMV properties will work. Why is someone going to sell you a property for BMV? Would you sell your property for under market value?
 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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This is an excellent point by EvolutionBlogger. What you really want is a property that will go up in value.

I would argue that if you're able to buy a property at "below market value" then it's because there isn't much demand from other buyers (otherwise the seller would obviously sell it for a higher price if they could). That also means that once you buy it, unless something in the market fundamentally changes, there still won't be much demand for your property and so growth will be minimal.

Especially in a strong market where we are seeing strong growth, I would much rather buy a desirable property in a good area with strong fundamentals, pay a fair market price, and benefit from further strong growth from day one.

Unfortunately, I see lots of potential investors who never take the first step to invest in property because they suffer from analysis paralysis, feeling like they need to achieve a big discount or find "BMV deals" that don't really exist.

Chris Hancox

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1 hour ago, Chris_Hancox said:

Unfortunately, I see lots of potential investors who never take the first step to invest in property because they suffer from analysis paralysis, feeling like they need to achieve a big discount or find "BMV deals" that don't really exist.

The internet is full of 'property gurus' who say you need to find 'motivated sellers' and buy 'BMV'. Most of these people have never done a deal, and look like they haven't hit puberty

It's not just in property this happens. It happens in every niche. As I run my blogs, I keep abreast of SEO, content marketing etc. So many people write guides on 'how to make money online', when they have never made a penny themselves. Most of the strategies are copied from others and don't work - or haven't worked since 2010! 

Long story short. the internet is (mostly) full of ****
 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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13 hours ago, Chris_Hancox said:

With regards to paying over the odds, I also should have mentioned that if you are using a mortgage, the lender would require a valuation survey. If it was really over the odds, you would get a down-valuation, which would mean either putting in a higher deposit or being unable to afford the mortgage. As such, the valuation can also be a sense-check as to what you are paying. In any case, it sounds like you've paid a fair market value if it would sell for 12% higher only 9 months later.

Thanks for this Chris - I've always thought the same.

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13 hours ago, EvolutionBlogger said:

I'm going to flip your question on your head. What you want is a property that will go up in value? There can be loads of reasons why this happens:

  • You pay a low price in a down market (e.g. covid)
  • You buy in a location that is primed for growth
  • You buy in a period of economic growth
  • You buy into a property sector primed for growth, e.g. warehouses over the past few years

Personally, I would focus on 3 things:

  • Which location is primed from growth
  • Which strategy is best for you
  • Choose the right property structure

My two cents:

  • Don't invest in BTLs in West London! SDLT in £30,000 for a £500k property. In West London, that **might** get you a garden shed!
  • I personally like commercial. Yields of 10%+ are easily obtainable. SDLT is much lower for commercial
  • Think seriously about investing with a ltd co. Corporation tax of 19% vs up to 45% income tax

I have a blog with tons of free articles where I talk about these ideas in more detail. Link here

I'm not sure searching for elusive BMV properties will work. Why is someone going to sell you a property for BMV? Would you sell your property for under market value?
 

Thank you for your response Evolution Blogger.

I suppose the benefit of the BMV properties (if they do exist) is that you make money immediately upon buying which can then be used to buy more (maybe BMV). It does seem like I'm chasing my own tail though. With a non property related full time job its also quite hard to get a viewing on a property, some come up listed on Rightmove as 'no longer on the market' as the agents have had so many people on their books show interest they know it will sell.

 

Agree with you re West London. I need to learn more about commercial - are there any good threads?

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11 hours ago, Chris_Hancox said:

Unfortunately, I see lots of potential investors who never take the first step to invest in property because they suffer from analysis paralysis, feeling like they need to achieve a big discount or find "BMV deals" that don't really exist.

I'm a massive victim of analysis paralysis in all areas, was lumbered with custard creams or chocolate hobnobs decision yesterday. 

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46 minutes ago, Always Learning said:

I suppose the benefit of the BMV properties (if they do exist) is that you make money immediately upon buying which can then be used to buy more (maybe BMV)

This is very unlikely to be the case in practice.

Even if we suppose that you have purchased a property "BMV", to access the assumed equity via a remortgage you would need to convince a surveyor that the market value is now immediately higher than you have just paid. They will look at recent sales prices for comparable properties in that location, and unless there have been enough transactions to justify your low purchase price as an anomaly, you are highly unlikely to secure the higher valuation. Even if we assume there have been lots of recent transactions at the higher price (sufficient to prove the market value) then it's highly unlikely that you would have been able to secure the BMV price in the first place, since the seller would have had more options to sell at a higher price!

The other way to access equity if you can't remortgage is by flipping. But even in this scenario, the transactional costs of buying and selling (SDLT, mortgage fees, broker fees, solicitors, ERC's, agents fees) plus the time cost of holding the property mean this is also very unlikely to work and be profitable in practice. Also the market conditions that allowed you to obtain a low purchase price are likely to still be the same immediately after buying, so if there was low demand and no competition from buyers when you bought, it's likely to still be the case when you sell after such a short time.

Chris Hancox

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2 hours ago, Always Learning said:

Thank you for your response Evolution Blogger.

I suppose the benefit of the BMV properties (if they do exist) is that you make money immediately upon buying which can then be used to buy more (maybe BMV). It does seem like I'm chasing my own tail though. With a non property related full time job its also quite hard to get a viewing on a property, some come up listed on Rightmove as 'no longer on the market' as the agents have had so many people on their books show interest they know it will sell.

 

Agree with you re West London. I need to learn more about commercial - are there any good threads?

If someone is selling their property via an agent, then it will be sold at market price (by definition). 

This forum doesn't have many threads on commercial. I have some articles on my website.

If you have a pension, then you can convert it into a SSAS pension. A SSAS Pension can own commercial property. You can also lend money from your SSAS pension to yourself, in order to fund property purchases. You essentially become your own bank, and can use your pension funds to boost income outside of your pension. It's a very powerful tool. 

One very popular strategy is commercial conversions. You can convert commercial property to residential, under permitted development rules. This can be very profitable, but you will need to do some education

 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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Agree with most of the comments - my strategy has been auction properties that need a major refurb and/or small extension. Due to my contacts I am able to get the work done at a much lower rate than a normal commercial builder hence i can add value at a relatively low cost. Typically i mortgage after 9 months and will easily get a mortgage that returns most of my investment. Not sure if this is BMV as bidding at auction is ridiculous and i normally bid on 4-5 properties with 1 win being very fortunate..

 

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