Below Market Value Property Model
All the knowledge, tips, and tricks on how to identify an under-market valued property within the UK. We will also delve into how such properties can be sourced and why it’s becoming a popular property investment strategy.
Getting Started
What is a below-market-value property?
A below-market-value property is a property that is being sold for a price less than its current market value. This could be due to various reasons such as the owner needing a quick sale or the property requiring repairs or upgrades.
Why would anyone sell below market value?
Sellers may opt to sell their property below market value due to a variety of reasons such as financial difficulties, needing a quick sale, or in some cases, repossessions. Developers or multi-property owners may also sell below market value to dispose of multiple units quickly.
Can I mortgage these types of properties?
Yes, in most cases, you can mortgage below-market value properties, subject to your financial status and the condition of the property. However, some auction properties may require cash purchase. We recommend consulting with a financial advisor if you're looking to buy a property in poor condition. Nonetheless, there are still properties in great condition that sell at discounted prices, such as off-plan developments.
What is an off-plan development?
An off-plan development is a property that is being constructed or agreed to be built, with sales starting before completion. Many buyers believe that buying new property comes with a premium price, which can be true once completed. However, being involved in the earlier stages can enable buyers to get discounts on their purchases.
Why invest in below-market-value properties?
Investing in the right property is crucial, and this model offers the perfect strategy for maximising your return on investment. By initially leveraging with finance or cash, you can later remortgage to take advantage of any property value growth. This strategy is especially effective when buying properties under market value in high-demand areas, such as cities or regeneration zones, where the growth potential is significantly higher.
If you manage to find a property that meets all the criteria of this model, your chances of experiencing larger growth increase exponentially. Purchasing a property under market value can effectively increase your capital gain by over 10% at the point of completion. Savvy investors can use this extra capital, along with price growth across the years, and then re-finance within 2-3 years, to withdraw their profits. This is a tried-and-tested strategy for financing your property purchase.
However, finding properties that meet these criteria can be challenging. Traditional local estate agents tend to favour their local investors, so as an outsider to the area, you may find it difficult to source suitable properties. To ensure you find the best properties, it is important to conduct thorough research yourself. Use online portals such as Rightmove to compare properties and scrutinise each property to ensure it meets your criteria.
By following this model and carrying out due diligence in your research, you can maximise your investment potential and reap the benefits of a well-researched property investment.
What does it look like?
This is a property development we have had involvement in, around 10% discount from full market price was achieved earlier in the stages of construction. Situated within one of the country’s biggest regeneration areas, it made a great investment option for those seeking below market value and capital growth.
The latest ONS and Land Registry figures show that house prices rose fastest over the last year in the North West of England, up by 18.6%.
This was followed by big increases in Wales (16.7%), in Yorkshire and the Humber (15.8%) and the North East of England (15.3%).
Source: Office of national statistics, HM land registry, BBC
Further information you may need to know?
What are the risks with this investment model?
When investing in under-market value properties, there are some risks to be aware of. Firstly, it's essential to do thorough research to ensure the property is indeed under market value. Additionally, if the property is in bad condition, it's essential to factor in building costs and profit margins. If it's under construction, you should also consider the waiting period before it is complete and ensure that your finances are aligned.
Why is it challenging to find these deals?
Finding under-market value properties can be challenging, especially if you're looking for multiple units. Many landlords or developers want a quick sale, which is why approaching consultants or teams like ourselves can be beneficial. We can guarantee sales within a certain period, provided the property meets our criteria. Our reputation within the industry also allows us to negotiate prices down for our clients.
Off-plan vs Completed Properties?
Based on our experience, the majority of under-market value properties we deal with are off-plan and off-market. Completed properties that we get under market value are case by case, and there may be reasons behind a quick sale.
What are the benefits of buying off-plan properties?
Buying off-plan properties comes with several benefits. Firstly, there is a legal requirement to have a 10-year build warranty, giving you peace of mind. Any white goods fitted are likely to come with a 5-year warranty, saving you additional costs. Furthermore, you have the opportunity to research and get a good discounted price.
What about snagging and furniture?
Once the property is complete, the site managers and build warranty providers will carry out final checks and snagging before a full building sign-off. In some cases, furniture may be included. If not, you can shop around for a full furniture package provider, which can be cheaper than buying all the items yourself.
How do the figures work with finance?
Assuming you're placing down a 25% deposit, and you receive a 10% discount on the price, if you also short-term let the property, you can expect a 100% return on your 25% investment no later than two years of ownership. This could be from rental profits alone, especially if you're earning 10% net on price or factoring in capital growth.