Tuesday 7 March 2017
5 reasons why the phrase BMV is a complete and utter farce
There, I've said it. I absolutely hate the phrase "below market value," or BMV. Hate is a strong word, but there is simply no other way I can describe my feelings. BMV does not exist. It is merely a throwaway phrase to describe "a good deal." Let's delve further into this...
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 on Clapham Road with two bedrooms and approximately 600sqft are £550,000 and this particular seller sells at £440,000 you will be buying at 20% below market value.
Yes, indeed, why on this green Earth would someone give you £110,000 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 market such as London one merely has to drop the price a smidgeon to get interest. And don't tout the old "it was £550,000 and now it's £525,000 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 £600k market value is not worth £550k! Do your numbers because by the time you add in stamp, legal and finance costs you'll probably need to buy at £400k 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. For example on my latest purcahse the £25k refurb added £85k worth of value, thereby trebling my investment.
So, go out there and find the most difficult to access properties and be tenacious. Winston Churchill said "Never ever, ever, ever, ever, ever, ever, ever, ever give up," so 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.
If you are looking for investments and are on the verge of giving up because you can't get over 10% return on your investment come and talk to me. I source properties on a retained basis for clients and I can help build you a profitable portfolio. Read my blog, you will see the projects I do for myself and the numbers are in plain sight. Follow me on social media, come meet me at the Clapham Property Meet or send an email: firstname.lastname@example.org
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