Overview - What is the Below Market Value Strategy?

Overview - What is the Below Market Value Strategy?

What is the Below Market Value Strategy?

This property strategy is about securing or purchasing properties for less than their current market value.

Why might you choose this strategy?

This strategy offers many benefits. The first thing to consider is that you will create instant equity. For example, if you purchase a car, for £5000 that was actually worth £10,000 you have just made yourself £5000 worth of vehicle equity and this work exactly the same for property.

When we refer to ‘below market value’ we are really talking about creating our own instant equity or our own value within the property that we are purchasing. Many people do this because it allows them to recycle deposits.

People in the property space will often talk about a BMV for example you may have heard people mention things like a 25% BMV figure. For example, if the bank end you 75% of the money that you need, which is relatively standard in buy-to-let investing. This means that there is 25% of equity that you will need to find yourself. However, if you are buying the property at 25% less than what it is worth then this gives you the opportunity to recycle the deposits. In the property space we use the term recycle deposits rather than not use the deposits because in the first instance you will have to put the deposit in to then get it revalued at a later date, to then eventually pull it out.

Something to mention is that this strategy has become less common than it was a few years ago. In the 80’s and 90’s there was a tremendous number of investors and developers who made great careers and built substantial portfolios by recycling deposits. This strategy can still be done today, however there are many more complexities and a there’s a lot more to understand to make it viable today.

Who should be looking at this strategy?

If you are somebody who is looking to retain properties and build a career in the property space, particularly in the buy-to-let-space or the retention of stock space then this strategy might be something that is really worth you knowing about and understanding.

For this strategy you will have to invest a lot of time because you will need to put some real energy into the property sourcing to ensure that you can find these particular deals because we currently live in a world where people are aware of the worth of the value that they have. Back in the 80’s and 90’s people were less property aware and were therefore more likely to take a deal.

For this strategy you will most likely need some capital behind you, for example you may need a couple of deposits for properties to make it worthwhile. This strategy is about systematising, building a portfolio and creating a business for yourself opposed to just having 1 or 2 properties.

Where could you implement this strategy?

You could do this strategy anywhere in the UK. However, it is less likely that you will operate in areas where properties are more sought after for example around London and you will have to research and actually look at the market at that time.

When may you do this strategy?

If the market is incredibly fast and incredibly buoyant then people are less likely to take a reduced offer on their properties. However, if you are looking at a property that has sat there for some time and are not moving, then this is when people start considering taking them lower offers.

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How do you implement this strategy?

This strategy really comes down to your property sourcing and having the ability to act quickly because you may need to take somebody out of a negative situation by acquiring their property from them. This is why you will need your deposits so that you can act quickly and get it moving forward.

Sometimes, you will be able to find market properties that are below market value however with this strategy you will be much more successful if you focus heavily on the off-market property sourcing. Therefore, you really need to get into property sourcing.

This strategy is really going to suit those of you who are really wanting to be property detectives, people who want to really get down into it and find those hidden gems.

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