Below Market Value - Part III

November 06

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This is the third newsletter about buying Below Market Value.

In part one, I spoke of that fact that because of certain differences between the property market and other types of market it is possible to buy property below market value. I also spoke about the use of the leaflets as a way to attract attract motivated vendors, and also to work out what form of adverts actually work for you.

In part two, I spoke about newspaper adverts, personal contacts and estate agents. I explained they can bring below market value properties to you. We also discusesd how it is important to use that test approach to your leaflets first, before you start spending money on newspaper ads.

Today, the subject is the three hours hard work you have to do.

That three hours pretty much starts when the phone rings and someone says they saw your advert.

What you must not do is say that you will go round straight away. There are two reasons that this:

• Firstly, it can make you look too desperate (never a good negotiation tactic)
• Secondly, you need a few hours is to do your research

In those three hours there are three questions you needed answering:

• How much demand will there be to let out this type of property?
• How much rent when I get for this type of property?
• What is a fair market value for this property?

The first two of these (tenant demand and the rent expectation) work hand-in-hand.

Now, because I tend to buy properties in the same area, I generally have a fair idea of what properties will let for, which roads are in demand, and which types of houses and easy to let. This is one of the big advantages of concentrating in a relatively small area.

However, when I look at something slightly out of my area, then I pick up the phone and speak to some letting agents, and ask them two questions:

• If I brought you this kind of property, how long think that takes you to let it?
• Secondly, if you were to let this property, what would you get for it?

Those you have heard my Portfolio Seminars will realise that normally when I talk the letting agents I ask them how much it would let for... and then I phone up the following day pretending to be a tenant interested in that type of property, and ask them how much I wuld have to pay.

When you only have a few hours before you are going to talk to the below market vendor, you can phone up two different letting agents and ask them the question, speaking to one as a prospective landlord, and the other as a prospective tenant.

However, that only two of the questions. The third question is that of fair market value for the property. For this, you need to get some comparables.

Now the good news is that in the last couple of years this has become much much easier. The Office of the Deputy Prime Minister now have the Land Registry publish actual sales prices in a far more timely fashion than they used to.

There are various sites on the Internet you can go to to to find this information. You enter a postcode and a size of house, and the site gives other properties that have sold in the last few months.

Importantly, you get the actual selling price not just the estate agent asking price.

The site I use is HomeTrack which costs about a tenner a report, although if you are getting a lot of these there are various companies the offer monthly subscription schemes where first 15-20 pounds per month you can download all the Home Track reports you want.

If you are serious about BMV then it may well be worth joining one of those schemes.

Although you are finding out market rents and demands, please do not misunderstand me

I am looking at tenant demand to protect myself. It may well be the when I go and talk to the vendor, it will transpire that they would like to stay on.

However, there is every possibility that they will not be an ideal tenant. They may quickly fall behind in their rent.

So I need to make sure that I have run my figures as if I were buying the property at arms length.I need to know that the property would stack up as a rental investments at market rent.

I said that there are three hours work you need to do between the phone ringing and going into talking to the vendor.

In the next newsletter, I intend to go through what to say when you get there!

This is just the feature article from the November 06 newsletter. Subscribe for market comment, forthcoming events, and more.

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