Are you a property investor who frequently visits online property forums and participates in discussions? If yes, you’ve most likely observed that BMV or Below Market Value properties have become a hot topic these days. Of course, from an investor’s perspective, BMV properties present a good opportunity to either earn a regular monthly income by renting them out or make a considerable profit by selling them.
BMV properties refer to the properties that are made available at below the market value, so much so that you may find typical residential properties at 20% to 40% below the market price. And this leads us to the biggest question – why would someone sell his/her property at such a discounted price?
Let’s try to find the answer.
Why BMV properties are available in the market
It’s important to understand that BMV properties don’t necessarily mean they’re defective or have lower standards. There could be several reasons why someone is prepared to sell his/her property below the present market value. Here’re the key ones among them.
- Underlying family issues are one of the most common reasons why properties are sold below the market value. A divorcing couple may try to split the asset as soon as they can, before parting ways.
- If someone has willed that the profits from the sale of his/her property would be divided among multiple offsprings. The latter, after the person’s demise, may want to sell the property below the market value to expedite the sale and obtain the proceeds.
- A property developer may try to cover his/her costs to be able to raise capital for another project or to proceed with the present project. However, in that case, multiple properties are typically sold together in a single deal and not as individual ones. Therefore, you – as an investor, may be able to make huge profits but you’d need to have very sound financial ability to do so.
- Once a property is repossessed by a mortgage company, it typically tries to recover the money as soon as possible within a strict deadline. As a result, the property may be sold below the market value.
- A person, when placed in a pressing situation, may not have options other than selling his/her property quickly. These may include work relocations and financial difficulties, among others. So, the person may decide to sell the property below the market price to expedite the process.
If you observe these reasons closely, you’d see that the driving factor in all the cases is speed. Usually, a cheaper property stands a good chance of being sold faster.
Pitfalls to avoid when buying properties below market value
Many investors, new or inexperienced ones, get attracted to BMV properties as they offer the opportunity to save a lot of money. However, this is also the reason why there’re so many self-proclaimed BMV gurus in the market. Here’re a couple of steps to protect yourself from these unscrupulous middlemen.
- Conduct thorough research: Identify the exact reason for which the actual owner is prepared to sell the property at a cheap price. It’d also be wise to check whether or not any major changes are planned in the nearby areas that could impact the property’s value in the future.
- Identify the potential of the property: If you’re buying the property for renting it out, be sure to check ongoing local rental rates. It’d help you to understand whether or not you’ll be able to make any reasonable income after covering any mortgage payments and associated expenses. If you want to sell the BMV property, thoroughly examine the recent statistics related to property interest, price growth, and sales in the area.
While BMV properties do exist and have the potential to help you make good income/profit, there’re risks associated with them as well. So, keep the above tips in mind, follow your instincts, and the process should become a lot safer for you.