Where to find REAL Below market value deals

Transcription

1 Where to find REAL Below market value deals Kate Faulkner Managing Director of Designs on Property Author of Which? Renting and Letting and Property Investment Handbook Copyright of Designs on Property Ltd

2 Agenda What is a below market value (BMV) deal? Why would someone sell a property for less than it s worth? How can the market influence BMV deals? Where do you find a BMV? How do you value a property? Free resources Questions

3 What is below market value? A below market value (BMV) deal is where you secure a deal to purchase a property for less than it s worth Usually 10% to 30% less However, there isn t one price for a property: An estate agent will give a market appraisal e.g. 110,000 A buyer may offer 99,000 A lender may value the property for mortgage purposes 97,000 A surveyor may value the property in its current condition 95,000 The seller and buyer may agree a different price 96,000 The question to ask is: which price should the property be below? Answer: the below market value price is LESS than a buyer would pay In our example, 10% below market value would be 96,000 10% = 86,400

4 Why would someone sell aproperty for less than it s worth? To sell a property for less than it s worth The seller has to be able to sell it at a discount: - They need equity in the property The seller has to be desperate due to: Debt Divorce Committed to a new build in the UK or abroad Committed to an onward purchase and has just lost their buyer The seller may just want what they can get quickly due to: Death Repossession

5 Where do you find BMV deals?

6 Where do you find BMVs? There are lots of different ways of finding below market value deals It isn t easy - you often need to research over 150 properties Financially review 50 properties Visit 20 properties which achieve your objectives Narrow down to 10 properties which are worth considering Offer on one to two properties where the seller is able to sell at a discount Where can you find these types of properties? Estate agents - Sometimes they have a desperate seller who will offer a discount based on a quick sale Letting agents - May have desperate landlords who need to sell because of financial difficulties

7 Where do you find BMVs? Auction houses - Check the property thoroughly via a surveyor and solicitor before you make any offers Notes through doors - Do this sensitively often people in financial difficulty don t want to sell on the open market - A polite note saying you re interested in buying their property may result in a quick deal

8 Best way to find a BMV deal Yourself Create a good relationship with local agents - Local solicitors Leaflets through people s doors Adverts in local paper Go to the courts for repossessions Find empty/dilapidated homes - Auction houses - Find out who owns the home and approach directly Network locally - For example with local developers - Offer Part Exchange?

9 Part exchange deals Local Developer For example. wants to sell a property for 400k Buyer Wants to purchase the new build, but can t sell their home The buyer s current property is worth 200k Investor Offers to buy the buyer s property for 10% below market value, i.e. 180k Buyer saves 3,600 on estate agent fees - The average fee is 1.8% which is from Buyer also saves 10,000 on the new build (developer gives discount due to cash purchase, this discount is a negotiated discount, the amount used here is an example) Everyone wins!

10 Part exchange deals Larger Developer Usually offer PX on properties for 30% MORE than the buyer s property is worth Sometimes only offer on certain plots Investor s opportunity is to offer on buyer s properties that they won t offer PX on - Developers offer to reduce the price for cash buyers - Buyer doesn t have to pay estate agent fees

11 How to make sure a BMV stacks up Value a property accurately Find sold property prices (Rightmove/Mouseprice) Look at Rightmove for comparable information Find exactly the same property, just sold on the same street If you can t: - Similar property within ¼ mile to 3 miles - Make sure it s on a similar road - Prices increase for off road parking/garage, corner plots, condition, schools, parks, character properties (in some areas) - Prices decrease for noisy roads, poor public transport, pylons, rat runs, backing onto factories Ideally need 3-5 decent comparables Surveyor who will work with you long term

12 Summary Be prepared to dedicate time to finding BMVs Build a good local network of property professionals to secure below market value leads Set up a system so you can analyse quickly whether a property will stack up as an investment Always be respectful of people s circumstances they re only selling at a discount because they HAVE to Be ethical don t take excessive advantage Never buy without a good RICS surveyor who will work with you