1. Know the difference between BMV and buying at a discount
Before we get the ball rolling, I’m going to answer a few questions that’s bugging you’re mind. That is, if buying below market value the same as buying at a discount? If you think about it layman’s terms, they both promise buyers to fetch houses at a lower price, but what sets each other apart? Is one better than the other in terms of making a profit?
The answer in the first question is a big N-O. Buying below market value and buying at a discount are 2 entirely different things. When you buy discount, this means that you were able to snag a property for a price lower than the original asking price. When you buy below market value, on the other hand, means buying a property for a price that is less than the perceived market value for that property at the time of purchase.
Buying at a discount is, probably, easier to get, since real estate agents often houses with an extra amount compared to their expected sale price. So that the buyers could take home a little pride when they’ve “successfully” haggled the price of a house.
Determining if you were able to buy below market value is a bit trickier, because property values in an area are determined by different factors, and you’ll only be able to say definitely that you bought a house below the market value after you compared the price you paid against the opinions of property valuators or experts in the area.
2. Answer distress calls
Distressed sellers are an ideal group of sellers to find if you’re looking to buy below market value. These are people who have an extra motivation to sell because of circumstances in life that they are going through such as moving to another country or needing a large sum of cash to pay off outstanding debt (the reasons are endless). These types of sellers are more willing to part with their property at a loss if it means earning cash now.
Attending mortgage sales is another way to find potential BMV properties. If you haven’t been to one of these, this is where lenders or banks sell the properties they’ve repossessed. But you have to keep in mind that there’s still a possibility you might not be able to purchase below the market value in these events, because banks are still out to recover the money they lost, while still providing a fair price for the defaulting borrower.
If you don’t find luck in either of the ways I shared earlier, websites like the National Mortgagee and Deceased Estate Data are also some of the portals you can use to spot properties with distressed sellers.
3. Spot the not
When you’re visiting a prospective property, always make sure to make a note of any flaws or faults you notice with the house. You can use this knowledge when you’re negotiating the overall price of a house.
For example, an elderly seller promised to clear out the pile of rubbish in his front lawn before the settlement date. Come the agreed period, the rubbish is still found on the lawn and, even worse, it got a lot bigger. In this case, try to reason with the seller that rather than hire people to clean the dump, he can just deduct the cost from the purchase or sales price.
4. Property investing is a two way street
Make sure that in every property transaction, you always create favourable terms for the seller. Contrary to what you believe, a sale isn’t all about the buyer. Figure out the reason why the vendor is willing to sell, and use that as a foundation for a deal that’s good for both parties.
So if the vendor is in a hurry to dispose of his property, try to waive the cooling off period or cut down the settlement period, or if he’s in need of cash right away you can agree to give him a certain amount of cash right now, but the rest of the sales price could be paid within an agreed period of years.