There are always those property questions that we come across on a repetitive basis.
The ones which we all have tried to address when we started investing and same ones the young investors will try to address too.
Most such property questions come out of a concern that warrants people to spend some money even before making an offer on a deal.
Here are three questions that come to us from our quarterly events, coaching sessions and our Q&A calls with our community.
1) 25% BMV – Would You Buy?
The simple question we ask is “What do you consider as BMV (below market value)”?
- For some its 25% less than asking price….
- For other its 25% less than market price derived from sold comparables….
- And for few others its 25% less than either of those.
Would you be satisfied if someone sent you a deal as part of their sourcing engagement for you to buy on that basis?
The questions then would be:
- What if the seller or the estate agent have increased the price and gave a 25% discount?
- What if the sold comparables have not considered the condition of the property?
The simple answer you would get even from some experienced investors is, BMV is what ever you think is acceptable to you.
Here is the thing:
If you consider whatever is acceptable to you as BMV (below market value), then you will end up creating a portfolio where each property in the portfolio will have a different acceptance criteria.
That’s human mind for you 😊.
The solution then is:
We call it a “Deal Profile” making it a bit more scientific based on what parameters are comfortable to you.
A combination of
- Return on investment you are comfortable with on a property
- Cashflow you are comfortable with at atleast 5% interest rate
- Maximum money you are comfortable leaving in the deal
If you now create a criteria based on above 3 elements that fits your situation, it becomes a fence that will question your mind if the offer you are submitting meets above criteria or not.
If it doesn’t then its not a BMV and if it does, you got a deal. Validate the sourcing deals you get based on above deal profile criteria personalised to you.
It helps your sourcing team to understand what you are looking for in very simple terms.
2) Survey Of Property Or Not?
The steer is really simple.
If you are in your initial stages of property investment, get the survey done irrespective of whatever condition the property is in.
The first ever buy to let purchased at Limitless Monks in UK, we got it reviewed by an experienced builder to ensure we minimise on any obvious mistakes.
However, it was the surveyor who found that there is an indication of subsidence within the property resulting in a wall crack which has been fixed using wall ties post purchase.
Should we not have engaged the surveyor, we would have never known to fix this one making it unsafe for the tenants and to our investments.
Here is the thing:
You cannot practically spend on survey for every property you view. If that is true then you will have to be selective in engaging a surveyor within the properties you view.
We took a two step approach when we started.
Offer on the property subject to survey. i.e. we engage a surveyor only when an offer is accepted. Any feedback from surveyor that may impact the offer is discussed with the seller.
This approach will let you offer and spend money on survey or otherwise only if that offer is accepted.
If we are uncomfortable on structural defects after our first viewing of the property, we take a second viewing on the property with surveyor the second time to ensure we are good to offer on the property.
This approach will ensure you are spending money before you offer but only on those which you think warrants survey.
3) Refurbishment Costs
Forget about others, we ourselves had this question when we started not knowing how to cost the refurbishment.
The simplest of things we did was to request an experienced builder to show us how he will assess the work required and paid him for his time to help us out.
We did this exercise on 5 different properties to ensure we are aware of what we are entering into costing us about £200.
That’s a price anyone should be able to pay to gain the knowledge and create a quick schedule of works with a tradesman/woman.
We have here a detailed refurbishment cost tracker for you to download should you wish to get a start. Just click the button above and get the full free resources list sent to your inbox.