You know castles, right? …those huge royal buildings often displayed in the movies. Someone told me you could own a castle in some parts of the world at ridiculously below-market value. I didn’t doubt him because below-market value properties have never stopped existing since God-knows-when.
What are below-market value (BMV) properties and how do you buy them?
If you are a real estate investor, you’d agree that a strategy that earns you some extra bulks is a welcome idea. Not quite surprisingly, buying property at below-market value and then reselling at huge profit-margin prices is one such strategy.
According to the Royal Institute of Chartered Surveyors (RICS), market value is “the estimated amount for which a property should exchange on the date of valuation, between a willing buyer and a willing seller in arm’s-length transaction after property marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.“
Market value is the estimated amount a property would normally sell for after full consideration of all factors that can affect its overall value, and without any pressure or compulsion on both parties. In contrast, below market value property is one offered to potential buyers at a price that is less than its estimated amount, following a proper market valuation. In simple terms, the property is cheaper than it is worth.
Why Do Properties Fall Below Market Value?
In real estate, just like any other investment, property value can be affected by several forces. A property bought at a given value can lose or gain significant value within a relatively short period and the reasons are not far-fetched.
A below-market value property must be clearly differentiated from a cheap, worthless one. The fact that a property is cheaper does not mean it is a below-market value property. A property can only be determined as below market value after a full valuation based on good features and flaws at arms-length transaction reveals that it is truly being offered for sale at a lower value.
Now you may want to ask ‘why would a property owner, fully aware of the property’s worth, go ahead to sell it at a below-market value’? Below are a few reasons why below-market value properties still abound.
- The seller or seller agent wants to move properties without spending time on marketing and inspections: The seller or seller agent (real estate agent who works for the seller) might not have valued the property properly and adequately before listing it for sale.
- The seller agent is not familiar with the market: The seller agent might not be familiar with the local market and would offer the property at an underestimated value.
- The seller agent did not compare with all sales data available: Using recent sales results to access a property’s value can be misleading. Sometimes, the seller agent may not have compared with what competitors are offering for similar properties.
- An actual drop in local value due to temporary disasters or war.
- A property seller/owner under compulsion to sell off quickly: For several reasons, a seller may want to sell off a property quickly even at a below-market value. For example, a seller who offers a minimum cost for a property because they want to relocate to another property, say in their dream location or hometown.
- A developer who has gone broke and needs to sell off the property as fast as possible.
- Properties negotiated for bulk purchase: If you have the purchasing power, negotiating deals in bulk can afford you a below-market value for each. With this, an investor can purchase land at a ridiculous wholesale bulk price and resell it immediately or after developing it.
10 Best Ways to Buy a Property at Below-market Value
Considering that buying below-market value properties is one sure way to make huge profits as a real estate investor, it is important you know how to buy a property at below-market value without any problems thereafter, isn’t it? Here are 10 ways you can do that.
Be Familiar With Local Market Prices
Have you ever bought something at a seemingly low price only to later discover that you had been cheated? That can also happen in real estate.
Before you start looking for a below-market value property, you need to have a good understanding of the local real estate market. Without a good knowledge of the average local selling prices, you won’t be able to identify good opportunities when they come.
Knowing the market also allows you to be more realistic with the price to pay for a property. If you are not familiar with the local market prices, you may end up overpaying for a property or bidding against yourself in a competitive situation.
Clearly Define Your Strategy And Criteria
Aside from the sheer value of the property, what are some other criteria you may want in the property? If you are particularly interested in personally developing the property, you might be specifically interested in some aspects of the property.
When buying a property below market value, you should have a clear strategy in mind. You should also define what your budget is, as well as other specifications and areas to look out for. This is important so that you don’t shoot yourself in the leg in the process. Students in Akron University, Ohio, use The Depot at Akron Student Apartments to look out for their areas of interest before purchasing.
Exercise Patience While Searching
Finding a property below market value is not as easy as you might think. It can take a lot of time and effort to find a below-market value property, most of which are properties owned by sellers who are relocating or who are going bankrupt.
Patiently searching for a below-market value property for weeks or months may be exhausting but in the end, when you do find one, the patience will be worth it.
Also, patience is key when negotiating the price with the seller after you find one. You don’t want to appear too desperate which might dispel the seller from offering you the property. If you are too eager to purchase the property, you might end up overpaying for it. In any case, be willing to walk away when the deal is unfavorable and the seller is not willing to compromise.
Work With a Good Real Estate Agent/Realtor
Having a good realtor can be instrumental in finding below-market value properties. With their wealth of knowledge about real estate and the market, a good realtor can help you identify good opportunities and can also inform you about a not-so-good one.
When you work with a realtor who knows what they are doing, they will also guide you from paying more for a property than you need to. The best realtors will also be willing to negotiate on your behalf.
Be Flexible With Your Options
It is important to be flexible with your options when trying to buy a property below market value. You need to realize that may not get everything you want on the property. Hence, you should be open-minded and sometimes willing to compromise.
Being rigid with your requirements can delay your decision-making process. Being flexible allows you to act quickly when you find a good below-market value property. Don’t forget that you are not the only one in need of such a good property.
Look For Motivated Sellers
Finding motivated sellers is one of the best ways to find a property below market value. A motivated seller is one who is desperate to sell his property and is willing to accept below-market value for the property.
In order to find such motivated sellers, you should start by looking for foreclosure properties (properties that were bought with borrowed money and will be reclaimed if the buyer fails to pay within the stipulated time). Foreclosure properties are often offered at a discount because the seller is desperate to get rid of them.
Observe The Don’ts
It’s easier to find cheap property than it is in finding a worthy property at below-market value. In order not to end up making a mistake you would regret thereafter, you should observe the following don’ts.
- Don’t take the property at face value: Do your valuation and compare the offer
- Don’t let the ridiculous price bias your judgment on the true value
- Don’t go through unnecessary middle-men: They can further increase the price
- Don’t be afraid to haggle: Getting below-market value property might sometimes require you to haggle
Have Your Cash on Hand
Some property sellers or agents who give out property below market value sometimes do so because they are in some instant need of the money. If you want to get the property at below-market value, you need to have your cash ready. Otherwise, they might give it to someone who is more ready to pay.
In a case when you do not have the full money for the property, you may need to get a loan from financial institutions or a private lender. Bearing in mind that the property will be worth the hassle in, especially when you are convinced that is it a valuable below-market value property.
How To Know If a Below-Market Value Property Is Worth It
How can you be convinced that the property is worth what you believe it is? Taking it at face value or carelessly agreeing to buy it when you have not done enough research about the property can land you in serious problems later. Here are some ways you can determine the true value of the asset before you commit to paying.
- Ask the seller how the market value was defined – It is possible that the market value is out of date by months or years. The seller may have assessed the value of the asset for long but is not offering it out at that rate. In some cases, the old price may actually be higher due to inflation and increasing asset value. In a few cases, the property may actually have lost value. This is where you need to be sure before you buy because when it comes to real estate, not all are as valuable as they look.
- Research current market trends
- Compare similar properties
- Explore the property in detail
- Work with a realtor/real estate agent you can trust
- Ask for a copy of the valuation and/or a new valuation – If the developer or seller really wants to sell, they should be open about valuations. Ask for a copy of the valuation, and if you’re not sure of what they show you, request for a new valuation. If still in doubt, check with the Board of Valuers, Appraisers, Estate Agents, and Property Managers to ensure the agency carrying out the valuation is properly accredited and the document presented to you is verifiable.
Final words
You just saw some of the best ways to buy a property below market value. Finding a discounted property that is worth more than the price can take some weeks or even months but the wait is always worth it. After finding a great deal, there are a host of other things you need to do – be patient, be flexible, work with a good and knowledgeable realtor and never forget to compare with the local markets.
You know castles, right? …those huge royal buildings often displayed in the movies. Someone told me you could own a castle in some parts of the world at ridiculously below-market value. I didn’t doubt him because below-market value properties have never stopped existing since God-knows-when.
What are below-market value (BMV) properties and how do you buy them?
If you are a real estate investor, you’d agree that a strategy that earns you some extra bulks is a welcome idea. Not quite surprisingly, buying property at below-market value and then reselling at huge profit-margin prices is one such strategy.
According to the Royal Institute of Chartered Surveyors (RICS), market value is “the estimated amount for which a property should exchange on the date of valuation, between a willing buyer and a willing seller in arm’s-length transaction after property marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.“
Market value is the estimated amount a property would normally sell for after full consideration of all factors that can affect its overall value, and without any pressure or compulsion on both parties. In contrast, below market value property is one offered to potential buyers at a price that is less than its estimated amount, following a proper market valuation. In simple terms, the property is cheaper than it is worth.
Why Do Properties Fall Below Market Value?
In real estate, just like any other investment, property value can be affected by several forces. A property bought at a given value can lose or gain significant value within a relatively short period and the reasons are not far-fetched.
A below-market value property must be clearly differentiated from a cheap, worthless one. The fact that a property is cheaper does not mean it is a below-market value property. A property can only be determined as below market value after a full valuation based on good features and flaws at arms-length transaction reveals that it is truly being offered for sale at a lower value.
Now you may want to ask ‘why would a property owner, fully aware of the property’s worth, go ahead to sell it at a below-market value’? Below are a few reasons why below-market value properties still abound.
- The seller or seller agent wants to move properties without spending time on marketing and inspections: The seller or seller agent (real estate agent who works for the seller) might not have valued the property properly and adequately before listing it for sale.
- The seller agent is not familiar with the market: The seller agent might not be familiar with the local market and would offer the property at an underestimated value.
- The seller agent did not compare with all sales data available: Using recent sales results to access a property’s value can be misleading. Sometimes, the seller agent may not have compared with what competitors are offering for similar properties.
- An actual drop in local value due to temporary disasters or war.
- A property seller/owner under compulsion to sell off quickly: For several reasons, a seller may want to sell off a property quickly even at a below-market value. For example, a seller who offers a minimum cost for a property because they want to relocate to another property, say in their dream location or hometown.
- A developer who has gone broke and needs to sell off the property as fast as possible.
- Properties negotiated for bulk purchase: If you have the purchasing power, negotiating deals in bulk can afford you a below-market value for each. With this, an investor can purchase land at a ridiculous wholesale bulk price and resell it immediately or after developing it.
10 Best Ways to Buy a Property at Below-market Value
Considering that buying below-market value properties is one sure way to make huge profits as a real estate investor, it is important you know how to buy a property at below-market value without any problems thereafter, isn’t it? Here are 10 ways you can do that.
Be Familiar With Local Market Prices
Have you ever bought something at a seemingly low price only to later discover that you had been cheated? That can also happen in real estate.
Before you start looking for a below-market value property, you need to have a good understanding of the local real estate market. Without a good knowledge of the average local selling prices, you won’t be able to identify good opportunities when they come.
Knowing the market also allows you to be more realistic with the price to pay for a property. If you are not familiar with the local market prices, you may end up overpaying for a property or bidding against yourself in a competitive situation.
Clearly Define Your Strategy And Criteria
Aside from the sheer value of the property, what are some other criteria you may want in the property? If you are particularly interested in personally developing the property, you might be specifically interested in some aspects of the property.
When buying a property below market value, you should have a clear strategy in mind. You should also define what your budget is, as well as other specifications and areas to look out for. This is important so that you don’t shoot yourself in the leg in the process. Students in Akron University, Ohio, use The Depot at Akron Student Apartments to look out for their areas of interest before purchasing.
Exercise Patience While Searching
Finding a property below market value is not as easy as you might think. It can take a lot of time and effort to find a below-market value property, most of which are properties owned by sellers who are relocating or who are going bankrupt.
Patiently searching for a below-market value property for weeks or months may be exhausting but in the end, when you do find one, the patience will be worth it.
Also, patience is key when negotiating the price with the seller after you find one. You don’t want to appear too desperate which might dispel the seller from offering you the property. If you are too eager to purchase the property, you might end up overpaying for it. In any case, be willing to walk away when the deal is unfavorable and the seller is not willing to compromise.
Work With a Good Real Estate Agent/Realtor
Having a good realtor can be instrumental in finding below-market value properties. With their wealth of knowledge about real estate and the market, a good realtor can help you identify good opportunities and can also inform you about a not-so-good one.
When you work with a realtor who knows what they are doing, they will also guide you from paying more for a property than you need to. The best realtors will also be willing to negotiate on your behalf.
Be Flexible With Your Options
It is important to be flexible with your options when trying to buy a property below market value. You need to realize that may not get everything you want on the property. Hence, you should be open-minded and sometimes willing to compromise.
Being rigid with your requirements can delay your decision-making process. Being flexible allows you to act quickly when you find a good below-market value property. Don’t forget that you are not the only one in need of such a good property.
Look For Motivated Sellers
Finding motivated sellers is one of the best ways to find a property below market value. A motivated seller is one who is desperate to sell his property and is willing to accept below-market value for the property.
In order to find such motivated sellers, you should start by looking for foreclosure properties (properties that were bought with borrowed money and will be reclaimed if the buyer fails to pay within the stipulated time). Foreclosure properties are often offered at a discount because the seller is desperate to get rid of them.
Observe The Don’ts
It’s easier to find cheap property than it is in finding a worthy property at below-market value. In order not to end up making a mistake you would regret thereafter, you should observe the following don’ts.
- Don’t take the property at face value: Do your valuation and compare the offer
- Don’t let the ridiculous price bias your judgment on the true value
- Don’t go through unnecessary middle-men: They can further increase the price
- Don’t be afraid to haggle: Getting below-market value property might sometimes require you to haggle
Have Your Cash on Hand
Some property sellers or agents who give out property below market value sometimes do so because they are in some instant need of the money. If you want to get the property at below-market value, you need to have your cash ready. Otherwise, they might give it to someone who is more ready to pay.
In a case when you do not have the full money for the property, you may need to get a loan from financial institutions or a private lender. Bearing in mind that the property will be worth the hassle in, especially when you are convinced that is it a valuable below-market value property.
How To Know If a Below-Market Value Property Is Worth It
How can you be convinced that the property is worth what you believe it is? Taking it at face value or carelessly agreeing to buy it when you have not done enough research about the property can land you in serious problems later. Here are some ways you can determine the true value of the asset before you commit to paying.
- Ask the seller how the market value was defined – It is possible that the market value is out of date by months or years. The seller may have assessed the value of the asset for long but is not offering it out at that rate. In some cases, the old price may actually be higher due to inflation and increasing asset value. In a few cases, the property may actually have lost value. This is where you need to be sure before you buy because when it comes to real estate, not all are as valuable as they look.
- Research current market trends
- Compare similar properties
- Explore the property in detail
- Work with a realtor/real estate agent you can trust
- Ask for a copy of the valuation and/or a new valuation – If the developer or seller really wants to sell, they should be open about valuations. Ask for a copy of the valuation, and if you’re not sure of what they show you, request for a new valuation. If still in doubt, check with the Board of Valuers, Appraisers, Estate Agents, and Property Managers to ensure the agency carrying out the valuation is properly accredited and the document presented to you is verifiable.
Final words
You just saw some of the best ways to buy a property below market value. Finding a discounted property that is worth more than the price can take some weeks or even months but the wait is always worth it. After finding a great deal, there are a host of other things you need to do – be patient, be flexible, work with a good and knowledgeable realtor and never forget to compare with the local markets.
