Hi, Peter Jones, ex-chartered surveyor, author and property investor.
In this video I want to think about whether buying a property below market value makes it a great deal and whether it makes it a great deal every time. And the short answer to that is no, I do not think it does.
Now, in this day and age we’re all thinking about buying our properties BMV, if you’re wondering that BMV means it means buying below market value, and that in itself is a little bit fraught because you have to know what the true market value is before you can actually buy a property BMV. We can have a very long discussion, probably some of us could get a very heated discussion, as to whether BMV actually exists in the real world or not. Personally, I think it does but we’ll leave that for a video for another day.
So, does buying a property BMV make it a great deal?
Well you’d think that buying a property cheap is the best way to buy a property, but it doesn’t always work that way, in fact I have done another video, I’ll leave the link in the description, where I talk about reasons why we may want to pay more, for example, than asking price, and it can still be a good deal.
But, I think looking at it the other way, if we just assume because we buy a property cheap, or below market value, it is a great deal then we’re missing one of the fundamentals of the property which we must make sure is there every time we buy a property. And that is that if we’re buying a property as an investment that there are sufficient cash flow within the property to pay the costs of holding the property including the mortgage.
I’ve seen many, many investors who have gone out excited, perhaps they’re buying their first property, they come across an opportunity. On the face of it it looks like a wonderful opportunity, they can buy the property really cheaply, and in their excitement they get fixated on the purchase price as compared to the value, and they don’t check out the rental market.
And I don’t care how BMV you buy a property. If it turns out that because you haven’t done your proper due diligence and you haven’t researched the local rental market, and it then turns out that there isn’t really a rental market, that there aren’t really the tenants who want to take that kind of property in that type of area, or there aren’t tenants who want to pay you the rent which would make the figures work, then regardless of how BMV it is it’s not a great deal.
You can buy a property for 25%, 30%, 50% BMV but if it’s going to be empty half the time, and if you’re buying it on a mortgage which you probably should be because of all of the benefits you’ll get from gearing, which again we’ll cover in a different video, then you’re going to find that that property is just going to bleed you dry, you’re going to probably have to subsidise the property from other earned income, and if you keep buying properties purely based on the price, just to get them BMV without researching whether there’s a healthy, strong rental market for that property, or that type of property, then your business will very quickly go bust.
So, buying BMV is a good thing, don’t mishear me, in the right context, depending upon which strategy you’re following. But buying purely BMV without thinking about any other of the fundamentals which come into play when buy investment property is not a good thing and you definitely don’t want to do that.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://thepropertyteacher.co.uk
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to:
https://thepropertyteacher.co.uk/the-successful-property-investors-strategy-workshop