I hate the phrase "below market
value", or BMV. Hate is a strong word, but there is simply no other way of
putting it. BMV does not exist. It is merely a throwaway phrase to
describe "a good deal".
So what is BMV?
As the phrase indicates it is a purchase price
lower than what you would normally expect to pay for a property. So if all the
flats in Welling with two bedrooms and approximately 600sqft are £250,000
and this particular seller sells at £200,000 you will be buying at 20% below
market value.
Why?
Yes, indeed, why on Earth would someone
give you £50,000 off simply because you can complete quickly, or act
confidentially, or any other rubbish that the "gurus" spout that will
help you convince sellers to sell cheap? In a strong market like Welling, with so little available at present, one merely
has to drop the price a smidgeon to get interest. And don't tout the old
"it was £285,000 and now it's £275,000 rubbish, that just means it was
overpriced to start with.
Creating genuinely good buys
So what creates "discount?" Well there's
no such thing as discount. It's price. If the price you want to pay is lower -
and as an investor you will want to pay as little as possible - you have to
look for the right set of circumstances. Reverse these if you are selling of
course.
1. Timing - Don't go in straight
away with a low offer (low compared to the asking price, not to the value, more
on this later) or you will be laughed out the door. Everything is about timing.
Day 1: seller is hopeful to get over the asking price, a million bidders
outbidding each other for his crummy, pokey, dated flat. You want a deal? Look
for properties that have been sitting around for a while. Sort by date listed
on the portal and work backwards.
2. Presentation. A cheap agent is
generally a bad agent. A good one charges what he's worth of course. So look
for properties on Zoopla. Rightmove is expensive and cheap agents can't afford
to advertise on such a posh portal. What does a pen cost in WH Smith vs
Harrods? Right, same pen, different price!
3. Cheap sellers. Linking with the
previous point, the cheapest sellers will be the most ill-educated.
Property-wise of course, they probably have pHDs (eyeroll emoji). There is a
time and a place for DIY agents, but I will go on a limb here and say that the
vast majority of sellers that sell through Yoga, PurpleMortar, Tipelo,
HouseDifficult, ZMoove are confident that their iPhone quality photos of their
dirty-toilet-with-lid-up-shot as the first picture will attract viewers by the
dozen. If you are reading this you must agree that, in the vast majority of
cases, good photography, a description written by someone that has proper
command of the English language (or has a computer with a spell check function)
will attract more interest/viewings/offers and thus a higher price. So... want
a deal? Look for DIY agents' listings. They're not getting any other viewings
or offers so yours is best by default!
4. Circumstance. These all link
together, but "I love it when a plan comes together." In an ideal
world you want the smelliest property that you can find, simply because it
completely puts off owner occupiers that normally offer about 20% above what
it's worth already refurbished. So when you call the agent... "oh, it's
tenanted you say?Access is tricky? Oh no Mr. Agent, well I'll wait for your
call then, do try and get in for me!" Now I've been down this road a fair
few times. Mr. Seller has probably let his property through ClosedRent, zPad or
some other "upload rubbish photos here and attract the worst tenants
possible" portal and not had the foresight to keep a set of keys. Now he
doesn't want to get rid of the tenants when he's selling because he wants to
squeeze every last penny of rent out of the property. Well that's good for you,
the investor, because the tenants are smelling the place out like a medieval
cesspit, not airing or heating the property and they work unsociable hours so
viewings are nigh on impossible. What do you think these circumstances do to
the achievable price of the property? Yes, 10 points for you, nobody can get it
and view, let alone offer on this lovely pile of opportunity. Good for you!
Keep chasing that agent, set a reminder to call him every 2/3 days and make
sure you get in, you'll be the only one and when you do, give that agent an
offer and make sure you tell him it's the best he'll get. It will be, mind you,
and he will do his best to shove that offer down the seller's throat with his
size 10s simply because he doesn't want to go through the hassle of trying to
arrange another viewing on it. Industry average is an offer every 10 viewings,
but if getting another 10 means 10x the man hours he's already put in he'll
definitely be pushing your offer - it will be easier for him!
5. Relationship building. This comes
after you've actually booked an appointment. I hate all these things floating
around saying that you must take estate agents out to lunch/dinner/coffee/buy
them flowers and otherwise schmooze them. Rubbish. Estate agents want a solid
offer, a solid deal and they want the transaction to go smoothly. So talk to
him (or her) about the potential other offers that they won't get because
they've had to spend 10 hours of phone calls with the tenants just to get you
in and they will side with you and your offer. Then when it gets agreed and you
go through with the deal with professionalism and returb the property to them
for the follow-on transaction they know you are a serious player and will come
to you with difficult flats first. Results mean a good relationship.
Ultimately though, chase the property, not the
agent.
So - BMV - fact or fallicy? I say it's a farce.
Market value is determined by a distinct set of circumstances surrounding the
property, nothing else.
If a seller wants to sell quick, you can buy and
you have a little more equity in the deal because if you sell at "market
value" and just take your time you'll find it's worth more. Like a
commercial property that's empty, the inverse is true for residential. Filled
with a smelly tenant the value plummets. So you want to sell for top dollar?
Sell to an end user buyer (owner occupier) so get the smell out (and the
tenant) and do some work to maximise value!
So as we've established, smelly tenants (not to be
confused with good tenants that keep the place tidy and add value of course)
and other problems such as decoration and refurbishment requirements reduce the
market value. Beware though, a property that needs £50k worth of work to get to
£275k market value is not worth £225k! Do your numbers because by the time you
add in stamp duty, legal and finance costs you'll probably need to buy at under 200k to
make any meaningful money. Perhaps you can sail closer to the wind if you are
looking to hold long term, but you will want to buy at less than the work costs
you. As a rule of thumb you should make £2-£3 for every £1 spent on costs on
building works.
So, go out there and find the most difficult to
access properties and be tenacious. Go forth and find
those impossible to access flats. Because nobody else will get over the
threshold to offer. Where there is no competition the price is low.
