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11:30 AM, 25th June 2011, About 13 years ago 9
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Something is only worth what the highest bidder is prepared to pay.
If you see something in the sales marked up at 50% off, that’s its value. The fact it was once priced up at twice the amount it is now is irrelevant. If you buy that item, that’s its value. If nobody buys it then it’s still not worth the price on the tag.
If I’m offered a property for a price of £50,000 and I’m provided with a valuation or comparables stating it’s worth £100,000 is it really 50% Below Market value?
Let’s face facts, if a property was really worth what the valuation said that’s what it would be sold for under normal circumstances. OK, you might get a few thousand off if somebody is desperate for a quick sale but how much is realistic? Remember the old saying, if it seems to good to be true it probably is.
The reality is that most properties marketed at x% BMV are not below market value at all. They may well be discounted but there’s always a reason. Just because somebody has spoken to every valuer in town and quotes the one that’s prepared to give the highest valuation on paper doesn’t prove anything.
So why is it that so many properties are marketed to so called “armchair investors” in this way?
What’s an armchair investor?
“Armchair Investor” is a phrase that’s been created to describe people who haven’t got the time, skills or inclination to perform due diligence but still want to invest into property. Accordingly, these arm chair investors have to rely on trust and are, therefore, easy targets for con-artists. Remember, the best con-artists are those who come across as extremely nice, knowledgeable, trustworthy people.
Good reasons for a property to appear to be heavily discounted
End of development – a developer may well be prapared to sell the last few propeties of a site at a discount but remember, everybody else chose the others first. There’s always a reason for that.
Auctions – remember that most properties that are sold in an auction have been marketed by an Estate Agent first. There’s usually a good reason why nobody purchased them.
Market dried up – if people can’t get mortgages any more the value of properties falls very quickly. This could be due to a variety of local, national or even worldwide economic or social factors.
Property needs work – very few homeowners want to buy a property that needs work as they want to move into a property they can live in with minimal disruption. The less appealing a property is to the mass market, the less it will sell for.
Unrealistic comparables – a property of a similar style and size can be worth 50% less than something just quarter of a mile away. This can be due to the view, what the property is next to etc. For example, a 1400 sq ft 2 bed with parking for two cars, in a gated community, overlooking a thriving marina could easily be worth double the value of another property just two streets back with no view, limited parking, next door to a food outlet on a busy road. However, unscrupulous people might use the marina view property as a comparable when pitching a ‘deal’ to an armchair investor who hasn’t got the time, skills or inclination to check.
So what does BMV mean to you and how can people avoid falling victim to con-artists who charge huge fees to source so called Below Market Value properties?
What is a true bargain and how would your recognise it?
Mark Alexander
Mark and his family have been investing in property since 1989, initially in the Norwich area but more recently across the length and breadth of England. Mark created Property118.com as a social network for landlords with a vision of becoming the UK’s largest online property investor directory.
Mark’s experiences and strategies as a landlord are shared here
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7:45 AM, 26th June 2011, About 13 years ago
Yes I have spent a considerable amount of money going to courses, to in fact teach me something I really already knew! however I now delete the vast majority of E-mails that come from these type of people basing my theory that they must have an ulterior motive to keep sending me loads of deals you positively cant miss and hurry up too cos it will be gone in the blink of an eye!
I do have property, not many but enough to keep me in my dotage if things dont get worse than they are today, whats more I didnt use any of the dodgy startegies to aquire them.
I would say all anyone needs to invest in property is a reasonable amount of knowledge and some, maybe not a lot, but some money!
these no money down deals have to go like clockwork or they will come unstuck and we all know things dont do that. (Do They?)
13:24 PM, 26th June 2011, About 13 years ago
Would a repossession still be an exception to these guidelines? The owner needing a speedy sale for reasons which do not affect the actual value of the property. Hence selling at auction &/or BMV.
18:35 PM, 27th June 2011, About 13 years ago
"“Armchair Investor” is a phrase that’s been created to describe people who haven’t got the time, skills or inclination to perform due diligence but still want to invest into property"
More money than sense springs to mind...
"What is a true bargain and how would you recognise it?.."
When the price and condition of the property, in conjunction with your mortgage product, stack up favourably with the realistic monthly income for similar properties in the area. All of the above can be ascertained with an hours research on the leading property portals, with a laptop, in your armchair 😉
Mark Alexander - Founder of Property118
22:14 PM, 27th June 2011, About 13 years ago
Hi Calum
For first level 'due diligence' I would agree. However, if you don't actually visit the property how will you ever know why it's so cheap compared to others? It could be a complete wreck, next door to something that puts everybody else off etc.
6:53 AM, 28th June 2011, About 13 years ago
Most definitely. Plus viewing properties is the fun part!
I do find myself strangely addicted to rightmove though 🙂
Nicola Parsler
11:25 AM, 29th June 2011, About 13 years ago
A true bargain is one where the property puts a decent amount of cash in your pocket AFTER expenses!
Mark Alexander - Founder of Property118
11:42 AM, 29th June 2011, About 13 years ago
Absolutely right Nikki and you can use our Number Crunchers to ensure you've included all the relevent expenses to calculate your returns
15:19 PM, 1st July 2011, About 13 years ago
I've been waiting for this type of debate for a while. Thank you, Mark! The subject is huge and not just as simple as you may think.
Turn your mind to almost anything and you could, in theory, be good at it. Property investment is no different. Apply your strategy, or someone elses (why re-invent the wheel), learn how to do your due diligence and apply your knowledge, jump on the internet and search for the property, arrange and attend all the viewings logging all the issues you see (having learnt what a property expert would see as an issue), do your sums, place your offers, discard the rejections, (can you see where I'm going with this?), get an offer secured, deal with solicitors, valuers, brokers, builders (if you need them), letting agents; the list goes on, and on, and on.
What's my point? I work with doctors, investment bankers, teachers, solicitors, police officers, diplomats, ex-pats etc etc - all of them purchase property I source for them. I do everything for them, they just check I've paid them their rent and their mortgage payments have gone out. Whilst it doesn't always go smoothly they come back for more. No business runs smoothly - it's naive to think so. These people are all capable of being good 'hands-on' property investors, and they want to be in property. Who doesn't? These are highly intelligent people. I look after their property investments (they make all the decisions, I do all the leg work), and they get on with the life they want to lead. We call it 'set and forget'. Set up the investment, and let us do the rest so they can forget about it and get on with the important things in their life. I liken it to a stock market investment. You buy your 'stock' and let someone else run that business, and you sell the investment when the time is right.
Property sourcers get a bad name because of the scams that have been exposed over the years. Please don't tar the whole tribe with the same brush. As Mark says, if it sounds too good to be true, it probably is. If someone tells you you're going to be a millionaire in 12 months time, walk away. Property is more about 'get rich slow', not get rich quick. It's no different in the world of stocks and shares. in reality, overnight millionaires are few and far between. I've recently been given backstage access to a massive stock dealing house and I can tell you I was shocked at their attitude to client money. I was horrified the ethos was milk the client for all you can. They couldn't care if the client made money or not.
As with all investments - Caveat Emptor! Be sensible, not over-ambitious, make an effort to know the people you want to work with (being a good judge of character helps), and you too can be a successful investor.
Phew - got that off my chest!
Kind regards,
Mick.
17:01 PM, 2nd July 2011, About 13 years ago
We all like to buy property less than it's worth and some skilled investors are able to do that by having access to contacts and information that others don't. BMV became the froth on the market before the credit crunch when valuers were providing valuations that mortgage providers believed and loans were provided to enable 'no money down' deals. All the parties involved were involved in an unsustainable market. It clearly coudn't go on forever. What we're seeing now and Mark's wise comments allude to this is a market more back to reality again. A healthy sign I think you would all agree.