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  • Buy-to-Let

    Buying BMV and flipping at auction

    Hi, I have managed to source a property was £117k valuation but ha been on market for a while. I went to speak to owner and managed secure a BMV of £86k via cash (I plan to borrow the cash from an investor at small interest rate) then refinance. He has some major debt issues. When I refinance will it be based at he £86k level? Or £115k?

    My plan was to use as HMO as good area for rental but also try my luck at auction - with reserve at £110k or so for quick flip. At auction would investors be put off by checking recent purchase price or will they look at valuation of £117k and rental yield potential (I estimate about 20% yield as HMO).  So keep as rental if can not sell at auction and then look maybe refinance later at 6 months+

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    The refinance will be based upon the market value of the property. It is not based on what you paid for it. The lender's valuer will come out and say yay or nay.

    With regard to flipping it, I presume some purchasers would be put off where you have owned the property for a  short time as the majority of mortgage lenders will not lend where a seller has owned a property for less than 6 months. If you are hoping to attract cash investors at the auction, then it should not matter to them that you have owned the property for a short period of time.

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    As the property didn’t sell at £117k the price was way to high and maybe the market price is what you paid for it so you got it at market price and not BMV?

    I stuggle to believe you got a desirable property which you can flip at auction without doing anything to it. Remember it is only an HMO if it has an HMO licence (my view).

    In today’s market it is extremely unlikely you can do what you are planning to do. But not impossible

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    You need to speak to lenders about what you are proposing.  Most will reference the purchase price where purchase was very recent.  The valuer will need to report recent transactions and explain why their value is different (if it is).  Unless there is good evidence that any refurb works have added value they may only lend to the purchase price.  Many borrowers overestimate the value they are adding by doing works.

    One further word of caution about buying BMV where the vendor has debts; if they go bankrupt, their Trustee in Bankruptcy may be entitled to unravel deals recently done if assets are sold at less than market value.  I have seen this happen.  Apart from the vendor's desire to realise funds to pay off debt, why would they sell at £30k below the value?  Is the £117k valuation a formal valuation or an estate agent's opinion?  What you really need is an RICS Red Book valuation to confirm what the proper value is

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    Although they will base and lending on market value they will be conservative and probably the question they will be wanting to know is how much you paid for it as that will be a basis for the value of the property.

    They definitely will not look at the valuation of £117k as that is clearly wrong as it was on the market for that amount for a while and was not sold...  remember the value of anything is what someone is willing to pay for it, clearly they were not willing to pay £117k for the property so it is not worth £117k. 

    If you were to extend the property then you could argue that you have increased the value compared to what you paid however the default value is likely to be what you recently paid for the property.

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    Thanks for replies. His debts are mainly to cover car and kids university so no bankruptcy level.

    There is a valuation of £117k from a RICS surveyor report (2 similar houses and one smaller in the area all sold in the £114k to £119k within last 9 months) but he had it in the market for £125k! Reason I believe him not selling is he was listing himself and not using agents and not been active dealing with listing.

    My offer was rather a 'cheeky' one and expected a no, but speed he wants to sell and for cash helped.

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    Sounds like you are solving his problems in his need for the cash quickly rather than getting full market value. We can’t assume to know people’s reasons but at least it’s not bankruptcy. Well done.

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