Do you know you can own a huge castle at a ridiculously low price? Here is how you can buy a landed property below market value.
Below market value (BMV) of a property is an amount of money that is less than the actual market value of that property. As a real estate investor, you want to earn more profit from your property deals. Buying at below market price is a strategy to increase your profit margin.
Just to mention, 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.” – Royal Institute of Chartered Surveyors (RICS)
It becomes clear why it is important to know how to buy a property at below market value, which is a price less than the estimated amount a property should normally exchange following proper market valuation.
Just like any other trading activity, buying a property at below-market value requires you to have a good understanding of the market as well as understanding the basic principles of pricing and negotiation. Here are 10 amazing ways to buy a property at below-market value.
1. Familiarize yourself with local market prices
Have you ever experienced a situation where you purchased an item higher than the price you normally should? Oftentimes it is because you don’t know the current market prices, and you end up regretting what you spent when you find out the prices later.
That also applies to real estate when you want to buy a property. This time you can use that knowledge not only to buy cheaply but even below market value.
Start by sampling the average selling prices for a unit property. Then, ask for the price of a property you are interested in. Thereafter, compare the price with your own price estimate and decide how much lower you want to go when buying.
If you are current about local prices, you will be able to identify a good opportunity to buy when it comes. Otherwise, you will miss out on mouth-watery opportunities.
2. Define your marketing strategy and criteria
Are you interested in personally developing the property for personal use or resale? It may be that you are interested in some aspects of the property, or maybe the location interests you. This will help you know what exactly you are looking for.
Another thing about strategy is that you need to be clear on how long you are willing to wait before you resell the property after buying. If you are a short-term investor, you should consider a price that is most favorable for you to buy.
On the other hand, if you are a long-term investor, you can factor in things like price changes, appreciation, or depreciation, and you can also lease out or put the property to other uses before reselling.
Define what your budget is and other criteria you are interested in. For example, when choosing a hostel apartment at Akron University, students use The Depot at Akron Student Apartments to search for their specific criteria before purchasing. You can also adopt this strategy to purchase property below market level.
3. Exercise patience
Finding a property below market value is not as easy as you might think but it is worth the process in the end. You need to exercise patience when searching for a property to buy below market value.
Most below-market value properties are owned by individuals or companies that are relocating or are going bankrupt but this does not happen so often.
Patience is also needed when negotiating the price with the seller when you eventually find one. Appearing too desperate can prevent the seller from offering you the property and thus, you lose out on that beneficial deal. That can also make the seller unwilling to compromise and reduce prices for you.
4. Work with a good realtor
Having a good realtor is instrumental in finding below-market-value properties. A good realtor can use their wealth of knowledge about real estate to identify good opportunities and inform you about potentially unfavorable ones.
A realtor who knows what they are doing will be willing to negotiate the deal in your favor below market price. They can counsel you on what decisions to take for every offer, depending on their assessment.
If you are a realtor yourself (which I presumed), you can team up with another one who is more experienced until you are good enough to search for below-market value properties.
5. Be flexible
It is important to be flexible with your options when trying to buy a property below market value. You may not get all you want in one property, hence you should be open-minded and sometimes willing to compromise.
Being flexible offers you some opportunities you never see coming. This includes potentially highly lucrative assets you never saw at face value in the first place but would later be in a few months to years.
Also, being too rigid with your options can delay your decision-making process and stop you from acting quickly when you see a good below-market-value property. Remember, there are others who are in search of these properties too.
6. Look for motivated sellers
A motivated seller is one who is “desperate” to sell his property and willing to accept below-market value for the property. These kinds of sellers are usually hard to find but they are one of the best ways to get a property below market value.
To find motivated sellers, you need to look at the reasons for such desperation among property sellers.
This can be in the form of “foreclosure properties” (which are properties that were bought with borrowed money and reclaimed if the buyer fails to pay after the stipulated period). Foreclosure properties are usually offered at a discount because the seller is desperate to sell them off to raise money to pay back.
Another subset of motivated sellers to look out for are those who are permanently relocating and are no longer interested in one or more of their landed properties. They can be desperate if they need some money to establish themselves in their new location.
7. Observe the don’ts of property search
The don’ts of property search involve special precautions to avoid making mistakes you would regret later when searching for and buying properties.
Don’t take the property at face value: Do your valuation and compare the offer with market standards and avoid assuming simply based on how you see the property at face value.
Don’t let the price bias your judgment on the true value of the property. Whether high or low, go back to your drawing table.
Don’t go through unnecessary middlemen: Middlemen can inflate the price to increase their own profits. Avoid unnecessary middlemen and if you must, make them as minimal as possible.
Don’t be ashamed to haggle: To get below-market value property, sometimes you might need to haggle.
8. Persuade with your cash in hand
Some property owners or agents sometimes give out their property below market value because they are in some instant need of cash. Having your cash in hand can persuade them to give it to you at a better price, as also if your cash is not ready, they might give it to someone else who is ready to pay.
Once you find a good below-market value property, you can get a loan from a financial institution or lend from someone who could give you. Shortly down the line, if you are calculation is accurate, you will be able to pay back and make some extra profits after the trade.
Reasons why a property falls below market value
A property can fall below market value for the following reasons:
The seller or seller agent (real estate agent who works for the seller) wants to move properties without spending time on marketing and inspections. Thus, the property and adequately before listing it for sale.
The seller agent is not familiar with the local market. Thus, would offer their agent’s property at an underestimated value in the market.
The seller agent did not compare with all the sales data available. This is another mistake that can make a seller or a seller agent offer property at below market value. Using recent sales data can be misleading, especially when the seller/seller agent has not compared with what their competitors are offering for similar properties.
An actual drop in local value is due to temporary crises, disasters, or war.
A property seller/owner is under compulsion to sell off quickly. This can be influenced by a number of factors as mentioned earlier.
A developer who has gone broke and needs to sell off the property as fast as possible.
Properties negotiated for bulk purchase: Bulk purchases usually tend to be cheaper for the individual properties bought. If you have a high purchasing power, you can negotiate each of the properties below market value while the overall price seems high and enticing to the seller. You can then sell them immediately or after developing them to make more profits.
How to know a below-market-value property
A below-market value property is not any cheap property available. It is important to clearly state that. The fact that a property is cheap does not mean it is below market value. That could be its actual worth.
Determining a below-market value property requires a thorough evaluation based on the pros and cons of the property and finding that the property is offered at a lower price.
To be double-sure if a property is below market value, here are some things to do.
Inquire from 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 using old rates that are no longer obtainable.
Research current market trends.
Compare similar properties in the same market.
Explore the property in detail, including the pros and cons.
Work with a realtor/real estate agent you can trust.
Ask for a copy of the valuation and/or a new valuation. If the agent really wants to sell, they will be open about valuations. Ask for a copy of the valuation, and if you are not sure of the figures, request a new valuation, or do so with a board of valuers, appraisers, estate agents, and property managers, for more accuracy in the valuation.
Getting a below-market value property is not easy but it is something you can do if you are committed to it. Among the most important tips, you need to be patient, flexible, careful, and to work with a good realtor you can confide in.
I am a medical doctor, a seasoned writer and passionate blogger. Thanks to many years of trials, failure, and near successes. I am the founder of Knowseeker and our content are geared towards enlightening and making you a better and happier audience.