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  • Property-a-holics

    What's your BMV ... ?

    We're all familiar with the term BMV = below market value.

    Most savvy people like to buy almost everything BMV - not just property!

    I think it was John Corey who suggested that the D's were the reasons that sellers may become "motivated" or "distressed" meaning that they would sell their property for less than it was worth in order to facilitate a quick sale.

    Death
    Divorce
    Debt
    Delinquent (faulty) or short lease or title problem
    Developer gone bust!
    Derelict or in need of considerable refurbishment

    Signs that a property might be available at BMV:

    Long time on market
    Advertised with multiple agents
    Price reductions (See Property Snake)
    Pictures of property show it unfurnished
    Says it is "open to offers" on the marketing.

    Then there are properties that are BMV for other reasons:

    No one wants to live there.
    Anti-social neighbours
    Signs of drug use & crime in the area.
    Major employer has gone bust and left the area.
    Over-saturation - too many flats for instance.
    Over-saturation of rental properties.
    Area has a bad reputation.

    What other reasons might a property be BMV?

    What other signs are there that a property might be BMV?

    The first list I consider "low risk", the second I consider "high risk".

    What's your BMV and why?
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    [Image: 4995468760_6be86655d4_t.jpg]
    general operations director, site owner and moderator - propertytribes.com

    I'd just like to add "with vacant possession" or "no onward chain" as being a couple of possibles to add to your first list Nick?

    Personally, I'm not too worried about BMV any more in terms of the value. We've seen them go up and down, so I just look at the rental achievement after all loans, costs etc. are paid on a monthly basis.

    With regards to BMV leads (some here may know I offer to investors), the percentage amount BMV that a vendor is willing to accept for a fast sale could also be a factor in motivation, but ultimately the 'D's above are very good reasons as well.
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    The S.A.P. ( Stress Argument Panic ) effect

    When premature Stress and Panic sets in they combine to create an Argument
    This can lead to a saving of ££££`s overnight if you are in the right place at the right time and the BMV property is yours

    10 viewings in 2 weeks but no offers will lead to a tea time conversation between weary couples along the lines of .....

    It must be overpriced dear .
    No its on at the right price I think
    But no one wants it do they
    I know I know - but give it time its only been 2 weeks
    Maybe we should have tarted it up.
    Shall we change the pink carpet.
    No I like it, it brightens up the room
    Your sister says we are asking too much.
    Well we have done well out of it are we being too greedy.
    The one round the corner is 10K more than ours so the price is about right for a quick sale
    I really dont want to live here anymore.
    I agree I want out of here
    Its doing my head in.
    That last couple who viewed thought the 2nd bed was too pokey.
    Well i said that when we bought it but you said we should buy it.
    Dont blame me its all your clutter in there
    Its not cluttered we just need a few shelves
    Well when did you last pick up a screwdriver and put up a shelf
    Dont start on me we wouldnt even need more shelves if you didnt keep buying stuff we dont need
    Oh stop whinging
    You started it.
    Look we need to get out of here all we do is argue now
    Yes I cant settle.
    I really love that house round the corner.
    Yes its perfect for us
    I hope we dont lose it because of this stupid house not selling.

    The S.A.P. effect has now sapped their energy to fight

    Yes I just want out now
    So do I
    But what shall we do
    Shall we drop the price do you reckon.
    Its only been two weeks though
    Yes but no one has offered yet
    Yes we could drop a bit I guess as we got lots of equity.
    It was 100K we said we would accept 90K
    So 85K ?
    No lets go to 80K .
    Thats a big drop
    I know I know it sticks in the throat but we need to do it if we want to sell
    That investor the other day seemed interested so he may go for it at 80K
    Ok ok but you ring the agent tomorrow
    Ok will do
    Are you sure
    Yes
    Ok dear lets go to bed now i`m exhausted .....



    12 hrs later...

    Hello Mr Clarke its Taylors Estate Agent here
    You know that 2 up 2 down i showed you last week.
    Well it was 100K but the good news is that there may be a bit more flexibility in the price now.
    We are talking maybe not 90 not 85 but maybe just maybe 80K. Interested?
    Come and have a second look..........

    6 weeks later

    Heres the keys Mr Clarke you did well to get that at 77.5K......... Are you ready for your next one.......
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    Jonathan Clarke. http://www.buytoletmk.com

    @AdamB Thank you for those extra additions.

    @JC

    I feel sorry for that couple!! Smile What was the reason they were motivated though?

    The lesson I got from your post was it's important to "keep your powder dry" after you have put in an offer. Let them mull it over and have their SAP.

    Does the investor ever suffer a SAP??!?!
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    (24-09-2012 08:53 AM)vanessa warwick Wrote:  @AdamB Thank you for those extra additions.

    @JC

    I feel sorry for that couple!! Smile What was the reason they were motivated though?

    The lesson I got from your post was it's important to "keep your powder dry" after you have put in an offer. Let them mull it over and have their SAP.

    Does the investor ever suffer a SAP??!?!

    Stress and panic in couples create positive and negative motivation in the human condition. The peer pressure both feel can motivate them to collude together to do all manner of sometimes negative things they would not perhaps do if they were alone. eg Bonnie and Clyde. Butch and Sundance. Ross and Brand. Rose and Fred West.

    The positive flip side could be when someone is stressing out about a big decision. Their partner / trainer / line manager motivates them and you then hear phrases like.... I could never have done it without you. You helped me through this. You backed me all the way. You supported me from the start.

    And yes investors suffer from SAP.
    eg Raising an offer too quickly rather than being patient.

    I have suffered from SAP and will do so again
    You have to train the mind to deal with it and see the bigger picture.
    Use it to your advantage though and thrive on positive stress

    Timing is everything
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    Jonathan Clarke. http://www.buytoletmk.com

    Do you have any other signs of BMV possibilities Jonathan and do you prefer the second list to the first, or you're not fussy? Smile
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    Most of the BMV factors are covered I think in Nicks post

    No I`m not really fussy where the BMV comes from. I kinda like investing in areas where there is some ASB and associated problems not because of the attraction of BMV so much but just because the intrinsic MV is so low compared with other estates in the vicinity. The yields are therefore higher. If you manage to get BMV in a low value area as well its double joy but if you aim for 10% yield even buying at MV then you dont have to search so hard or wait so long.

    I`m often happy with 5 or 10% BMV which you can pick up all day long. Within a year or so you have obtained the cashflow equivalent to if you had hung around to try and get the elusive 25% BMV.

    Additionally In 25 years the original extra BMV you might have got but havent held out for will pale into insignificance as your cashflow profits in that time plus capital growth and allowing for inflation will have reduced that significance to a bare minimum.
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    Jonathan Clarke. http://www.buytoletmk.com

    Thanks Jonathan.

    Are your yields based on LHA rates in poor areas? Do you have any concerns that these will drop as benefits cuts bite?

    I`m often happy with 5 or 10% BMV which you can pick up all day long. Within a year or so you have obtained the cashflow equivalent to if you had hung around to try and get the elusive 25% BMV.

    Very good point. Yes, BMV is important, but it's not the be all and end all!

    Short term and long term projections are a very good way of looking at a deal. I think most people are short termists which is important to ensure cash flow in the short term, as that means that the property is more likely to survive and benefit from long term factors. Smile
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    (24-09-2012 06:00 PM)vanessa warwick Wrote:  Thanks Jonathan.

    Are your yields based on LHA rates in poor areas? Do you have any concerns that these will drop as benefits cuts bite?

    Yes V my yields are based on the poorer areas. If I went to the upmarket areas the yields could be cut to almost half what i get now. So two for the price of one where I buy! The LHA rates are ring fenced and guaranteed for a year from April to April. I can therefore better predict my cash flow year on year. Rents are rising so the LHA rate ( which is based on the 30th percentile of the broad rental market area in MK) should hopefully rise next April
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    Jonathan Clarke. http://www.buytoletmk.com

    Hi Jonathan

    Hope you are well, long time no speak. I used to invest buying BMV (when you could do the whole day one re-mortgage). Then I switched to buying, adding value, refinancing to get back initial funds and renting out.

    Now I'm just looking at buying in a decent condition - leave funds in and getting a decent return on the cash invested. Could you talk through an example or two of yours that shows what you achieve as it would really help me benchmark against my own.

    p.s. I still owe you lunch I think.


    (24-09-2012 06:59 PM)Jonathan Clarke Wrote:  
    (24-09-2012 06:00 PM)vanessa warwick Wrote:  Thanks Jonathan.

    Are your yields based on LHA rates in poor areas? Do you have any concerns that these will drop as benefits cuts bite?

    Yes V my yields are based on the poorer areas. If I went to the upmarket areas the yields could be cut to almost half what i get now. So two for the price of one where I buy! The LHA rates are ring fenced and guaranteed for a year from April to April. I can therefore better predict my cash flow year on year. Rents are rising so the LHA rate ( which is based on the 30th percentile of the broad rental market area in MK) should hopefully rise next April
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    Editor of Your Property Network Magazine
    Leading property resource for UK investors.
    Grab a FREE copy of YPN at http://bit.ly/YPNfree
    Hi Ant

    Yes all good down my neck of the woods thank you. YPN is going great guns as well and is always part of my must read publications.

    I was paticulary pleased with a recent one of mine:

    1) 100K for a 4 bed. 950 LHA rent with a £50 tenant top up each month. Yields 12%
    75% LTV ( fees added ) 5 yr fix @ 5.49% = 355 pcm so 645 positive cash flow .
    Needs about 10K spent on it whereupon it will be maybe 125K on a good day.
    Spent about 3K so far to get it liveable in for tenant.
    Will leave it like that for 5 yrs then upgrade in readiness for a re valuation for a remortgage.
    May be worth 140K by then so another 75% LTV will get me 30K back out for deposit on another one

    2) 86.5K for a 3 bed. LHA rent of 750. Yields 10.4%. This was a cash purchase found for an investor. Ready to go no work needed doing but a very motivated seller. Worth maybe 100K so investor is getting ready for a remortgage after 6 mths which is almost up.

    3) One going through at the mo for an investor is a 3 bed repo at 93K. LHA rent 750. Yield 9.6%. Needs 5-7K spending on it then worth about 115K. for 750. Not sure how it will be financed at this stage

    Hope that helps

    Cheers Jonathan

    PS yes my stomach is still hanging on for that burger king whopper!


    (25-09-2012 10:44 AM)Ant Lyons Wrote:  Hi Jonathan

    Hope you are well, long time no speak. I used to invest buying BMV (when you could do the whole day one re-mortgage). Then I switched to buying, adding value, refinancing to get back initial funds and renting out.

    Now I'm just looking at buying in a decent condition - leave funds in and getting a decent return on the cash invested. Could you talk through an example or two of yours that shows what you achieve as it would really help me benchmark against my own.

    p.s. I still owe you lunch I think.


    (24-09-2012 06:59 PM)Jonathan Clarke Wrote:  
    (24-09-2012 06:00 PM)vanessa warwick Wrote:  Thanks Jonathan.

    Are your yields based on LHA rates in poor areas? Do you have any concerns that these will drop as benefits cuts bite?

    Yes V my yields are based on the poorer areas. If I went to the upmarket areas the yields could be cut to almost half what i get now. So two for the price of one where I buy! The LHA rates are ring fenced and guaranteed for a year from April to April. I can therefore better predict my cash flow year on year. Rents are rising so the LHA rate ( which is based on the 30th percentile of the broad rental market area in MK) should hopefully rise next April
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    Jonathan Clarke. http://www.buytoletmk.com