The acronym BMV is a commonly used term in UK property investment and one you will certainly have heard mentioned in many of the popular property strategies such as BRR (buy refurbish refinance), flip, SA (serviced accommodation) or HMO’s (house of multiple occupation). It stands for Below Market Value and is considered an important factor in making a profit through property investment.
What is BMV?
Below Market Value (BMV) properties are simply properties offered for sale at an asking price that is below the actual market value or amount that you would typically expect to pay for the property. There are various reasons why a vendor may list their property for sale at a BMV price but a common reason is the desire for a quick sale, which is often prompted by some kind of financial distress. This can include mortgage repayment defaults or an impending repossession or a significant change in circumstances such as relocation or a divorce. The sale of an inherited property also known as Probate Property, can be another reason why someone may want to sell their property quickly. These types of seller are commonly referred to as motivated sellers.
The key to finding BMV property is being able to identify motivated sellers
Types of Distressed BMV Property
We mentioned a few reasons why a property may sell BMV but there are various other reasons why a seller may accept less than market value for their property or sell a discount. These include the following and are all types of distressed property that we identify at UK Distressed Property.
How to find BMV property?
The key to finding BMV property is being able to identify motivated sellers. Building a profile of a motivated seller makes it easier to target this particular segment of the market. The profile will need to take into account the various circumstances i.e. financial distress, relocation, divorce etc that can cause a seller to want to sell their property at a BMV price. The most common circumstances found among motivated sellers can be summarised as the ‘three D’s of BMV’, which are debt, divorce or death. Any of these reasons can be the catalyst that makes a seller more inclined to sell their property at a discount or accept an offer that is less than what it would typically sell for. The amount of BMV or discount can range from 5% all the way up to 50% depending on how motivated the seller is.
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Motivated Seller Profile
What makes someone willing to sell their property at a price below market value? The points below are typical of the circumstances that this type of vendor may be facing.
- Debt – financial distress caused by loss of a job or repossession
- Death – sale of inheritance property commonly known as probate property
- Accidental landlord – section 24 / capital gains tax implications & burden of managing a property
Sourcing BMV Property Step by Step
Once you have an idea of the profile of a motivated seller, the next step is to figure out how to identify or target them. This can be as simple as browsing the property portal websites and looking for properties that have been on the market for a long time or are listed with multiple agents as these sellers may be more open to low offers. Another approach would be to compare these ‘aged’ listings with similar properties for rent in the same area to determine how well they rent and shortlist any they that should rent well but have been listed for sale for a long time. These may belong to the accidental landlord who is facing the impact of section 24 tax changes but now wants to sell to avoid tax charges. It is also worth checking local listings on Gumtree or Facebook to find properties where the seller is looking to avoid the hassle and costs of dealing with an estate agent.
looking for properties that have been on the market for a long time or are listed with multiple agents as these sellers may be more open to low offers
A further online approach involves the filtering for properties that have been reduced, Zoopla provides this, which can indicate that a seller’s circumstance has changed and may be open to even low offers.
A classic approach, known as D2V or direct to vendor, involves leafletting property in the locality that you wish to invest in with your contact details outlining your interested in buying property in the area and your ability to complete quickly. If you have the budget then you may take out adverts in local newspapers and online via social media, which allow for a more targeted approach.
BMV Due Diligence
Once you have found what you believe to be a BMV value property and have had your offer accepted, you must complete full due diligence on the deal as you would with any other property investment. This means that you should employ qualified professionals to complete the transaction. This is especially import with respect to the provisions of the 1986 Insolvency Act, which is a little talked about danger linked to purchasing BMV property. The consequences of falling foul of this act could mean that some years later should the seller become bankrupt their trustee may seek a court order to reverse the sale or claim back the difference between the open market value of the property and the sale price. The Insolvency Act grants trustees of a bankrupt the power to indemnify themselves from the bankrupt giving away their assets or selling them at below the market price. The purchaser of a BMV property is potentially exposed to these provisions for up to 5 years assuming no fraud or the parties are associated in any way. However, it is possible to protect against this by ensuring that the seller executes a Deed of Solvency at the time of the sale and then take out an insurance policy out of which any future claims by a trustee could be made. This is an important point to consider and discuss with your solicitor prior to proceeding with a purchase of a BMV property.
How Can UK Distressed Property Help Source BMV Property?
We hope that you have found this complete guide to sourcing BMV property informative and now understand how to purchase BMV property and the potential that it has to increase your chances of making substantial profits.
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