As with all successful investments, a low purchase price is key to achieving maximum returns. Sourced in the right locations, bmv (below market value) property allows investors to optimise returns by cashing in on both capital growth and the value locked into reselling at market value. However, in a slow housing market where there is little or no growth, investors buying bmv property can still do well, either by profiting in the short term from a resale or by holding onto their property for longer term gain.
Various reasons motivate sellers to shift their properties at below market value. In times of crisis or economic recession, they might look to release equity from a remortgage or a sale; alternatively, they may simply wish to move on in life and resolve a personal or financial crisis when time is of the essence.
Finding bmv property investment opportunities that will do well in good times as well as bad is not always easy. Aside from doing much of the groundwork and research yourself, it is often worth getting in touch with agents who hold databases of bmv properties, including bank repossession (or foreclosure) properties, giving investors an instant advantage to optimise their potential returns on investment.
Caveat emptor is a well known Latin expression meaning, “Let the buyer beware” – a warning that is often woefully ignored; careful due diligence avoids expensive problems that might arise once the sales transaction is complete and is then impossible to reverse.
Property below market value is priced low for a reason, and, although it might hold a very appealing price tag, it could still be a poor investment – natural factors could mean that it is located in an undesirable, low demand or poorly serviced area, making it difficult to resell or rent to a reliable supply of good tenants. As importantly, the property may simply be in such a poor state of repair that the renovation costs cancel out the advantage the buyer might have gained by purchasing it at bmv in the first place.
All purchases, including bmv investment properties, require careful analysis of market drivers in the area. What drives the local economy – is it tourism, thriving/growing employment in the city or some other factor? What capital appreciation, if any, is the area currently experiencing or does it really offer medium to long-term promise for the future?
Aside from these factors, bmv investors must identify all potential financial risks, as well as returns, before proceeding. This entails meticulous financial analysis, including a complete awareness of exactly what funds are required and at what stage of the investment, while an accurate cash flow analysis will ensure maximum financial leverage.