Buy Undervalued Repossessed Properties

An Understanding of Undervalued & Repossessed Property Dealing

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Copyright 2006-2009 by Martin Williamson

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Published by Profitdata in the UK

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While all attempts have been made to verify the information provided in this publication, neither the authors nor the Publisher, assumes any responsibility for errors, omissions or contrary interpretation of the subject matter herein.

This publication is not intended for use as a source of legal or accounting advice.

The Publisher wants to stress that the information contained herein may be subject to varying laws or regulation. All users are advised to retain competent counsel to determine what laws or regulations may apply to the user’s particular business.

The purchaser or reader of this publication assumes responsibility for the use of these materials and information. Adherence to all applicable laws and regulations is the sole responsibility of the purchaser or reader. The author and Publisher assume no responsibility or liability whatsoever on the behalf of any purchaser or reader of these materials. Any perceived slights of specific people or organizations are unintentional.

The Author:

Martin has wide experience in all aspects of property trading and dealing. He is a prolific writer and his articles can be found in the articles section of many websites and article banks. As a property analyst he has over 19 years experience and his knowledge is used in the application of this document and others within the series. He is ably assisted in his research by his partner Mali.

Getting Started

Working out if you are ready to go into the property business and weighing the benefits can be exciting. It's also stressful, no matter how well you plan. But doing your homework will definitely pay off in the long run.                           

It will make your entry into the world of property dealing so much easier if you follow the ethos of the Entrepreneur. Have you noticed how property dealers are always referred to as Investors? Sounds better, but you are actually going to be a speculator. Always remember that. A Speculator and you will speculate. That’s where the money is.

Risk The Entrepreneur is not a risk taker. This is a myth. Many people think that an entrepreneur is a risk taker. Research shows that they are trying their best to control the risk factor and will not take unnecessary risks. Every time they enter into a business commitment or try to introduce something new to the market, they appear to be taking risks, but in fact they have their plan and strategy in place to control the risks. They are not gamblers and in order to success, they have learned how to minimize and control the risks. Because of this, they can take more risks compare to others and achieve something that others always dream about.

   * The Entrepreneur is stubborn. An entrepreneur is stubborn with both vision and ideas. This is very important at the early stage especially with a new business venture that is not proven yet. Usually at this stage, there are a lot of rejections, criticism and negative comments from others. Their stubbornness will make them move forward here no matter what happen in this stage.

    * The Entrepreneur likes to keep everything as simple as possible. They know that only the simple things can be totally accepted and hence can boost their level of success. If you are able to keep everything simple, it will be much easier for you to take action easily.

     * An Entrepreneur can see “success”. Successful entrepreneurs can see success in their future. Many top businessmen see the potential of their project and believe that their business can bring them to the next level of success. For example, Richard Branson believed in the potential of music distribution and spent most of his early career dedicated to building up the business. This is a great example of how an entrepreneur visualizes success and plans the way to achieve it.

    * The Entrepreneur is perseverant. This is another stubbornness of entrepreneurs. They can persevere in their goal in any condition. They know what their goals are, they set a deadline, they understand the tasks that they must accomplish to achieve the goals and also the obstacles they may come across. So they focus on their goals. 

    * The Entrepreneur understands the importance of discipline. Discipline is the key to success in any field. As an entrepreneur, besides working hard, he/she must have self discipline. We see lot of fast ways to success being introduced to the market. However, in most cases, this is nearly impossible to achieve especially if you want long term success. Entrepreneur understands that only discipline and hard work can bring them the rewards.

    * The Entrepreneur is good in time management. Every day there are a lot of tasks waiting for entrepreneurs to tackle and accommodate. So time management is important to accomplish all the tasks on time. They can make decision, take action and accomplish their tasks quickly.  This makes them productive and high effective.

    * An Entrepreneur maintains good habits. Generally, an entrepreneur has a lot of good habits that make them succeed. Habits such as punctuality, good manner and remaining cool under pressure are very common. You will know this if you have an entrepreneur as a friend.

Conclusion

You can see the most important thing to be a great entrepreneur is habits and mindset. They are related. There’s a lot to think about, so let’s get started.

Secrets of Timing in the Repossessed Property Market

Even the property pro's would collectively agree that nobody can always time the property market, not even them. This may leave you wondering: If the pros can't time the market, how can you? The answer is simple, it’s regional. They work globally. You work locally. You must have your ear to the ground in your own area, your comfort zone. Stick to that zone!

For starters, you employ the same techniques that have worked for many who live by property dealing: Buy low and sell high. The first step is to determine the type of property market that exists in your town.

Knowledge is vital for success in property.  

Despite your best efforts, you still haven't uncovered the "trick," the "secret," the mysterious "key" to making an overnight fortune in property trading. There is nothing more frustrating than being able to see where you want to go ... but not knowing how to get there!

We can't promise you will make money. How can we?, we don't know you, your talents, background or anything about you. One thing is absolutely certain. We can show you how to make money though. 

To make money you have to buy right before you can sell and you need Information, Knowledge and Data to help you. That’s the place to start.

Economics is at the root of any investment decision and property is no different.

Do you know of anyone who has made a fortune buying from estate agents? No! Neither do we. However we do know a lot of people who make serious money selling through estate agents!! There’s the difference. Love them or hate them you do need Estate Agents!!

  There's little point in buying from property clubs or seminar promoters "of plan developers" either. They are far too expensive and they make their money by selling to you. If you are going to buy off plan then try and go direct.

  Your initial strategy:   “Buy undervalued properties in the right area and add value” then sell. Simple!!

  There is no simpler, faster or more effective way to make money from property than sourcing repossessed houses, or renovation properties! If you choose well when you are buying a property you can be set up for life, making massive gains in just a few years for relatively little capital outlay.

 Buy properties for a discount of up to 40%. That's a saving of £40,000 on a £100,000 house. Buy a bargain Property...Then Sell for a Handsome Profit! Any experienced property dealer will tell you that the first rule is to buy property at the right price in the right area, and that's what we'll show you how to do! You don't need experience of business or property. Anyone can benefit

Homeowners facing repossession are the most ‘Motivated Sellers’ you will probably ever find, and as such, having exhausted most other options, they often sell below market value for a quick sale to prevent the repossession of their home.

Property Investors / Professionals know how lucrative this market is and many spend thousands of pounds on advertising, trying to attract this type of homeowner, usually paying 15%-30% below market value and in some cases discounts of up to 50% have been known.

UK property is as healthy an investment as you are likely to find anywhere. Over the medium to long term, UK property simply can’t be beaten.

 * Since 1948 property in the UK has risen on average 11.3% years on year.

    * In the 32 years the Department Of Records have kept statistics, house prices have risen in 28 years and fallen in only 4.

    * Since 1962. The office of national statistics have recorded that rents have risen on average by 13% per annum.

    * A recent study predicts that by 2020, house prices will grow from £101,161 to £300,643 by 2020. If you buy a house today, you can expect its value to rise by 197% over the next 16 years.

    * There is already a shortage of 4 million homes in the UK and the population is expected to rise by 10% in the next 25 years.

    * Experts have forecast house prices will continue to rise by 20% over the next 48 months.

Consider this:

    * On average, UK property prices more than double every decade.

    * Property in some hotspots has been growing by 50% and more a year in recent times.

    * Over the last fifty years, property has only gone down twice in real terms – 1971-73, and 1989-92. Five years out of fifty.

    * The government estimates that we need to build 250,000 new homes a year, just to keep pace with demand. We are currently building less than half that number. Demand outstripping supply is a market condition that’s here to stay.

    * Unlike stocks and shares, property is a solid, useable proposition. Everyone needs somewhere to live.

    * Unlike other investment vehicles, property is built on land and, as Mark Twain once said, you should buy land, as they’re not making it any more.

    * Unlike other investments, you can buy your investment property with other people’s money (OPM). As a result, you can take advantage of the magic of gearing. A full and detailed explanation of gearing will come slightly later.

In short, property is an ideal money making vehicle.

The statistics demonstrate that property is a great investment vehicle which means there is a high demand.

Over the medium - to long-term property prices rise which means that everyone wants in.

Due to these two factors (among many others) demand consistently outstrips supply which means an upward pressure on prices overall.

These three factors have led to property as an asset group performing incredibly well over the last 50 years or more. When we talk about a high-performance asset group that everyone wants, we’re talking about a market that is consistent, that is rising (in the medium- to long-term) and that is economically efficient. Right!

Well, not quite.

If you were to go out into your local town tomorrow and ask a hundred people if they thought it was possible to buy half-price houses, even cheap houses, how many do you think would laugh at you and perhaps think you were a bit odd ? My guess would be – a hundred!

That’s because the properties the average person looks at when they’re buying, when they’re selling, when they’re curious, tend to be properties in the windows of estate agents and what they see there is an efficient market that continues to rise (with the occasional plateau or down-spike). And when they think about it, they realise that makes perfect sense, because of the factors laid out above.

Then, they look no further.

They don’t know there is a chain similar to any other market place. Retail gets stock from wholesaler. The wholesaler from distributor. Then distributor from the manufacturer (Builder). 

They of course are buying at retail.

What they don’t see is that, even in a market that is super-efficient on the surface, there is another, deeper, more hidden layer where deals are done, where property is sold off ‘on the cheap’, and where there are half price properties available all the time.

Usually, these deals are offered to property professionals first. This is not because it’s a closed market; it’s simply because half-price properties are often half-price because the vendor is in a hurry to sell, for one reason or another. Property professionals can usually move fast in making a decision, in raising money, and in completing on the deal. They are Entrepreneurs

The important point to note is – it’s not a closed market. If you know what to look for, and where to look, there are half price properties out there for the taking.

The best kept secret in property is that you never have to pay the full price, providing you talk to the right people, look in the right places, and focus on the right deals.

So, let’s consider:

    * Why properties come onto the market at below market value (BMV)

    * Who sells properties at BMV PRICES?

    * How you can track these properties, make offers on them, and add them to your portfolio

    * The five sources of BMV property,

And

    * Who to talk to in order to do a deal

Who Sells Houses Cheaply? And Why!

If property is the ideal investment, and UK property is such a good proposition over the medium- to long-term, who in their right mind would sell properties at BMV prices?

Well, there are several categories of property vendor who regularly sell properties cheaply, and it’s usually a question of expedience, rather than sanity.

Here are the main ones:

    * Banks and building societies

    * Large property holdings

    * Pension funds

    * Probate sellers

    * Distressed sellers

    * Private landlords

Let’s take a look at each one of these in detail.

Banks & Building Societies

In the property crash of the late 1980s, when the bubble burst and we were all paying 15% interest on our mortgages – remember those days? – Barclays Bank unwittingly became, for a time, the largest landlord in the UK.

When you consider that position, is usually held by the NHS, or the MoD, that’s quite an achievement.

The reason for this was the sudden deluge of repossessed properties. Many good people got caught in the so called negative equity trap in those dark years, where the value of their home fell below the amount they owed on it, and the interest rates made repayments almost impossible to meet.

Add to that a rash of redundancies, and you have a recipe for disaster.

Contrary to popular belief, banks don’t want to repossess the home of a customer.

They know the pain and hardship that causes – not only is a family being effectively made homeless, to add to whatever other woes they have at that time, but their credit record is effectively destroyed for years to come.

They also have an image to maintain of being a caring, local, helpful institution.

Plus, banks are not in the business of managing or selling off properties. So, when a bank finds itself the effective owner of a repossessed property, its main objective is to off-load it as quickly as possible.

Time is of the essence – an empty property on the books represents tied-up capital that could otherwise be put to work elsewhere. It’s almost impossible to insure and is therefore a significant liability.

The other thing to understand here is that, while time is of the essence, price is often largely irrelevant. Banks insure themselves against a borrower defaulting on the loan, and the insurance company picks up the tab for any losses.

 Imagine the bank have just repossessed a property with a market value of £120,000, and an outstanding loan of £100,000. Their primary objective is to claim back their £100,000. So you can immediately see that they may happily sell the property for £100,000, regardless of the market value.

But, if the property is damaged, or the market is flat, or it’s Christmas, or whatever, they might be prepared to take, say, £85,000, because they have an insurance policy under which they can claim back that extra £15,000 from the insurance company.

If you’re the buyer, you’re getting a £120,000 house for £85,000 – a discount of £35,000, or nearly 30%.

Large Property Holdings

We’ve already mentioned the NHS (National Health Service) and the MoD (Ministry of Defence). Other national and governmental departments may be included here, such as local authorities. The point to remember is that they all have significant property holdings around the country and, at various times and for various reasons, they decide to sell off some of what they own.

 For example, the MoD once had a vast number of houses around the country that were given over for the use of servicemen and their families. You can see them around any major military base, and even around some smaller ones.

As budgets and manpower numbers shrink, and priorities change, many of these houses have become surplus to requirements and are sold onto the open market. Now, the attitudes here are not the same as the banks.

The likes of the NHS, the MoD and local authorities have a public duty to maximise their returns on the sale of any property. (We could get into a long discussion here about whose properties we’re actually talking about here. After all, the government is an expression of us, the public. And the only assets and cash the government has belong to the taxpayer. But that’s beyond the scope of this book.)

On the other hand, there are resource constraints. In other words, if the MoD wants to sell 255 ex-service houses in various places around the country, it would be too expensive, time-consuming and labour-intensive to list each one separately with a local agent. Instead, they tend to sell through property auctions. And even then, using local auctioneers to ensure the property is auctioned locally may not be feasible either.

 It’s far easier to hand all 255 properties over to one of the large, London-based auctioneers like Barnard Marcus or Allsops, let them sell them as they see fit, and present the MoD with a single cheque once the transactions are complete.

Pension Funds

Property is held as an investment by many of the major pension funds and, like any other investment, the properties are bought and sold periodically. When a decision is taken to sell, it rarely concerns a single property. So, as bulk sellers, their motives and methods are broadly similar to those described above.

Probate Sellers

A probate sale takes place when the owner dies, and the property has to be converted into cash in order to be distributed as part of the estate. Such a sale may be the express wish of the owner, or that of a beneficiary of the will, or it may be necessary because the owner died intestate (i.e. did not leave a will).

The property will often be sold at auction and, once again, the primary motive is often to get rid of the property as quickly and as expediently as possible. Of course, the vendor can always limit his or her downside by imposing a reserve price, below which a lot may not be sold. But a motivated seller may chose a very low reserve (relative to the market value of the property) or even decide not to have a reserve at all.

Distressed Sellers

The statistics for divorce rates in recent year’s make grim reading. Often, a divorcing couple jointly own a property, and circumstances dictate that this must be sold, the debt cleared, and the proceeds split, before they can move on to pastures new.

Again, the main aim is to get rid of the house, not necessarily to get the very best price for it. Of course, people aren’t stupid. They want a reasonable price for their property, but in some such circumstances they are prepared to accept a BMV price, seeing the difference as a premium for getting the sale completed quickly and without complication.

Private Landlords

If you’re a landlord yourself, you know how quickly things can change. One minute you’re coasting along, with every property more or less covering its expenses, and then –WHAM!! –

You’re offered a drop-dead-amazing deal that you can’t possibly pass up. But you need to raise funds to do it, and you need to move fast. For the best of reasons, you become a motivated seller, and are prepared to accept discounted prices for your properties providing the buyer can move fast and pay you quickly.

In these circumstances, you’re likely to sell at auction. Of course, there are many reasons, other than the one outlined above, why private landlords may look to sell a property quickly, and be prepared to accept a lower price in return.

These are the main sources of bargain properties. There are other sources, and other scenarios that bring properties onto the market at BMV prices. All you need to remember is that such sellers are out there right now, and properties like this are selling every day.

How Can I Get Involved?

Of course, it’s no easy task, searching for bargain properties. You have to know where to look. You need access to specialist agents. You need subscriptions to a range of different databases. And, most of all, you need to spend the time, not only to find suitable properties in the first place, but also to research them, conduct searches and surveys, instruct solicitors, arrange financing and so on.

If you are serious about investing in property, then you already know that your profit is in the purchase price. Buying property at BMV prices can make the difference between taking seven years to double the value of your investment, and taking three. If you have the time to track down these properties then a good place to start is www.propertyenquiries.com or www.repossessed-house-sales.co.uk , where you’ll find links to many of the sources We’ve used in building our portfolios.

Alternatively, consider a subscription to www.profitdata.co.uk  , I have to declare at this juncture that I do have a vested interest in these sites.

Now, read on for the Five Sources of Bargain Properties…

Five Sources of Bargain Properties

Now we know that there are properties coming onto the market all the time at BMV prices. We know who’s selling them and, broadly, why they are selling them at such low prices. Now it’s time to discover where you can go to source such properties, and how you go about tracking them down, investing in them and adding them to your portfolio.

Let’s be clear about one thing. You won’t find half-price properties at all of these sources. However, you will find them at least one – regularly. And, as a bonus, the final source is where you can find properties for no cost whatsoever. 

Source 1 – Property Auctions

These are not the closed shops they were a couple of decades ago. Property auctions are now user-friendly operations that encourage the attendance of seasoned investors and newcomers alike. Indeed auctioneers, though they are working for the vendors to get as high a price as possible for every lot, are more than happy to help you with any queries you may have, whether they are general ones, or about a specific lot.

 However, auctions are not for the faint-hearted. It’s a high-energy, frenetic atmosphere in which it’s very easy to get pressured into a bidding war for which you weren’t prepared.

If you’ve never been to a property auction before, go along as an observer. You’ll be made welcome, and you can get the feel for it without having the pressure of bidding for a property. 

Looking for Ugly Ducklings

There’s a strange truism in the property market – people tend to under-estimate the cost of structural repairs and over-estimate the cost of largely cosmetic work. Also, if the cosmetics of a property are truly terrible, this can have a sufficiently strong emotional effect on potential buyers to put them off. If you’re not looking for a full-blown renovation project, the best properties to seek out are the run-down, shabby ones.

For emotional reasons, these will attract less attention from the crowd and, consequently, the price will remain depressed. Providing you can keep your emotions in check, and be sure there are no lurking structural issues, shabby properties can be turned into the best of bargains.

Look for Un-mortgageable Properties. This is a contrarian strategy, but only suitable for those who can buy investment property without the aid of a mortgage. Mortgage companies simply won’t touch properties with structural faults until these faults have been rectified. So how can a property that’s falling down be classified as a good deal? Well, in reality, these un-mortgageable properties are not generally falling down at all.

 The reason banks are wary of them is that they are not in a fit state to sell quickly and recoup their money, should you default on the payments. That’s all they’re really interested in. The fault may be a crack that signals subsidence, for example, but it may be decades old, and the subsidence may have stopped long ago.

Of course, it’s worth getting an expert investigation into it, but in many cases you’ll find that the problem is an old one that no longer exists, the damage is not significant to the structural integrity of the house, and there’s no urgent need to do anything about it. The upshot of this is that you could pick up such a distressed property for perhaps 50% of its repaired value; it’s a great combination of low interest on the auction floor, because of the structural and financing problems and a low reserve price to ensure the place is sold. If you can repair the damage for less than 50% of the repaired value, you’re in profit.

 Or you could let it at the full rate on the basis that an old crack isn’t going to impinge at all on the tenant’s safety or their enjoyment of the building, with the idea of repairing it in a year or two. And that will translate into a fantastic yield on your investment.

Look for Unsold Lots.

If you find yourself in a position whereby you’ve done all the research on a particular property, checked it out as best you can, decided on your upper limit, gone along to the auction, got involved in the bidding, only to see it withdrawn as it failed to reach it’s reserve, then make an approach. An unsold lot does no one any favours.

The auctioneer misses out on his commission.

The vendor is stuck with a property he doesn’t want.

 No one is happy.

So when you come along with an offer a little over the final bid from the floor, you’ll be welcomed with open arms. Now that’s not to say you’ll necessarily get it for less than the reserve (although you might). But the auctioneer and the vendor are likely to be keen to help you, and drop large hints as to what you’ll need to pay to secure the property.

This is a strong position to be in. Don’t be tempted to go over the limit you set yourself, and don’t be afraid to negotiate hard. Walk away if you don’t think they’re playing the game. If they chase after you, your position just gets stronger.   If they don’t.  Well, there’ll always be another property.

The main point here is to move fast. The vendor may actually be in the room, fed up that he hasn’t sold the property, and will be ready to listen to you. Approach the auctioneer at the earliest opportunity – perhaps during a break – and get things rolling.

A word of warning.  This applies throughout – Buyer Beware! When properties don’t sell, it may be for a good reason. However, buying post-auction does give you more time to do your research, and the last bid shows you what at least one other person was prepared to pay for it). For a full list of property auctioneers in the UK go to www.profitdata.co.uk . 

You can also join one or more of the online databases –

www.propertyenquiries.co.uk

www.renovation-property.co.uk

www.repossessed-house-sales.co.uk 

Source 2 – Repossessions

Currently there are huge numbers of repossessions and they are very cheap

Indeed, in 2001, according to government figures, there were 27,000 repossessions in the UK. In 2008 so far that number has doubled. Every one of these will have been sold by the repossessing mortgage lender in order to get at least some of their money back

In an auction catalogue, you can spot them by scanning the sellers for each lot. If the seller is a bank or building society, the chances are it’s a repossessed property. Also, look for tell tale phrases such as;

    * On the instructions of a liquidator

    * On the instructions of a LPA receiver

    * On behalf of mortgagees in possession

Elsewhere, mortgage companies are obliged, by law, to advertise the fact that they’ve had an offer on a property and, if there are no better offers within a stated timeframe, it will be sold. These announcements tend to be buried away in the smallest classifieds in a local newspaper, but they’re worth looking out for to guide you to repossessed properties. It’s called the 7 day notice.

There is little point in contacting mortgage lenders for current lists of their repossessions as they won’t supply them due to the data protection act.

When you’re buying a repossessed property, there are a few extra things to watch out for, in addition to those associated with any property purchase (such as surveys, searches and the like). Primarily, you need to be certain that the former occupiers' debt problems don't affect you.

The credit reference agencies, (Experian and Equifax) records rely on addresses and postcodes. You may find that they inadvertently assume you're connected to the former occupier. Check this after a couple of months by contacting Experian or Equifax and asking for a copy of the information they hold on you.

You'll have to pay a £2 fee for this. You can do it online, too. They should send you a copy of the information within seven working days, and they'll include information about how you can change the record if it's incorrect.

Don’t wait until you’re turned down for credit! That rejection alone will affect your future rating, regardless of the circumstances.

Apart from watching the credit situation, you'll probably have to pay for the utilities to be reconnected.

Source 3 – Reversionary Properties

Investing in reversionary properties is almost certainly the easiest and lowest-risk way to invest in residential property, with the highest potential return. You simply buy residential properties from elderly homeowners who need to raise capital and increase their income. On completion of your purchase, your solicitor grants them a lease.

They continue to live in the property, but as your tenants. They only pay a nominal rent so, to compensate you for this, you buy these properties with a discount of up to 60% off their vacant possession value.

When the property is vacated, whatever the reason, you can then let it at the full market rent, or sell it with vacant possession for the full open market value. You profit from the 60% initial discount and 100% of all its appreciation since you bought it. But there are many other benefits;

    * An RPI (reversionary property investment) is geared, without any of the normal gearing risk. 

    * You only need a relatively low initial investment. Since the price of an RPI is discounted by around 60%, it offers you low capital cost and dramatic medium- to long-term capital growth. And, unlike buy-to-let properties, everything is already provided by your tenants.

    * Many properties come with prearranged financing in the form of a non-status mortgage (currently fixed at 5.95%). There are no fees to pay. No proof of income is needed. There's no application form to fill out and no redemption penalties.

    * Under the terms of the lease your tenants (the elderly inhabitants you buy the property from) are legally required to maintain and repair the property and pay all expenses and outgoings. Not only that, many of them use some of their new capital to refurbish and modernise your property.

    * RPI’s tend to be pleasant, well maintained homes in good areas, owned by people who are reluctant to leave. The cash they receive enables them to maintain the property and stay near their friends and neighbours.

    * Although ideally a medium- to long-term strategy, you can sell your RPI at any time. Your selling price will take into account any increase in the value of the property and the increase in the age of the tenant.

There are only two vendors of RPI’s to individuals in the UK, as far as I am aware. I have personal experience of just one of these – Cavendish Property Investments – and I have no hesitation in recommending them to you.

Source 4 – Off-Plan Purchases

Buying a property off-plan has become rather popular over the last few years, and many private landlords and property investors have made it a central plank to their investment strategy. The basic premise is that a developer, keen to sell the properties he’s planning to build quickly, is prepared to accept a lower price in return for a rapid exchange of contracts, typically before the development is complete, and sometimes before it’s even begun.

From the point of view of the developer, the deposits paid by the buyers become working capital, or ease their debt burden on the project. You, as an investor, can enjoy four major benefits;

a. You are buying a brand new property for typically 10% or 15% BMV.

b. You are gaining control of a property for just the outlay of a 5% or 10% deposit, with nothing more to pay until completion.

c. You have the benefit of the notional capital growth between the time you exchange and the time you complete. This can be anything from a few weeks to a couple of years, depending on the development.

d. If you get it right, you can finance to buy on completion, then immediately refinance at the higher value – due to the combination of the initial discount and the capital growth between exchange and completion – and thereby extract your deposit.

Here’s how an off-plan deal might work.

Let’s say a developer has planning permission for thirty apartments on a city centre site, and is due to ‘break ground’ in the next few weeks.

The plans and artists impressions are all drawn up, the work crew are booked and ready, and it’s just a case now of getting the apartments built. Similar apartments in the area, with a similar spec, are selling for £160,000. 

 In a year’s time, when the development is due to be completed, they are expected to be selling for £175,000 (given current growth rates). The developer agrees to sell some or all of the apartment’s off-plan at a 15% discount to the price today, i.e. £136,000, or a discount of £24,000.

As the investor, you exchange and pay a 10% deposit today (£13,600) and then do nothing for a year. On completion, you raise finance on the buy-to-let basis of 85% of the purchase price (£115,600) and find an extra 5% yourself (£6,800). Then you immediately have the apartment valued to ascertain the actual value (£175,000), refinance to 85% (£148,750), pay off your first mortgage (£115,600) and pocket the difference (£33,150).

In this way you have taken back your 15% deposit (£20,400) and made an extra £12,750 on top. Very nice! However there are, as you might expect, a few potential pitfalls that you really must be aware of, look out for, and factor in to your planning for the ‘worst case scenario’, just in case.

No Discount!

When looking at a deal, you have to be very wary of the discount stated. The developer will, of course, want to make the deal as attractive as possible, and therefore make the discount sound substantial. However, it’s not beyond the realms of possibility that such a discount may be over-stated.

In other words, the price given at the outset, for the apartments if they were built and ready today may be 10-15% higher than reality, in which case the discount is not real. To get around this, do all you can to satisfy yourself that the discount is a true one.

Research similar properties in the area.  Look at what similar properties sell for, and not just the advertised price. Find out what the capital growth picture is for the area. And look into future demand projections for rental property (if you’re intending to let) – are there new employers moving into the area?

Is there heavy investment expected? Are new transport links being planned?

Even if you fully satisfy yourself that the discount is real, it still pays to be cautious. In other words, if you’re going into a deal for the discount and nothing else, it may be better to walk away.

No Growth!

Other than research, there’s not a lot you can do about it if the local or national market suddenly plateaus or falls. If the local market is currently rising by 8% a year, you must find out all you can, of course, about the factors that might keep it at 8%, or push it up to 12%, or take it down to 0%, or even reverse it to –5%

.

Then, you must make your own judgement as to the risk of zero or negative growth between your exchange and completion. Build it into your worst-case planning; how does the deal look if, a year down the line, you’re completing on a property that hasn’t gone up at all?

Remember, if the growth projections the developer makes (and you accept) turn out to be wrong, and your property doesn’t grow in the year or so it takes to build, then that removes your refinancing options, and means your deposit remains tied up in that property until the market moves upwards once again.

Will you be able to handle that?

No Rental Coverage!

A similar reality on refinancing strikes if the value of the property does as you expect, but the rents in the area drop from your initial projections, perhaps because of a temporary over-supply of rental property.

I had exactly this situation a couple of years ago. I was offered some off-plan apartments in a good city-centre location at a 15% discount, and almost a year to completion. I decided to go for two apartments in the last of the three phases of the development, on the basis that I’d get the longest period of capital growth before completion. That part of the plan worked fine. What I failed to factor in was that Phase 1 properties, the first to complete, generated exactly the sort of rents we all expected from the outset. However, Phase 2 apartments all made slightly less because Phase 1 had soaked up much of the initial demand. By the time I completed in Phase 3, of course, rents were right down.

This put me in the situation where the value of my investments were what we expected them to be on completion but, despite this, I couldn’t extract my deposit because I didn’t have the required 130% repayment coverage from the rents.

No Rental Demand!

In a similar way to capital growth, you can do as much research as possible on what similar properties are getting before you exchange, as well as the likely scenario for the next year or two. However, if rental demand suddenly drops off for reasons unexpected (or not spotted, as in my case above!) then you’re at the mercy of the market.

In terms of deciding whether or not to go ahead with a deal, you need to be sure that you can still make it work, even if rents remain static or fall below expectations.

High Fees!

It’s rare that developers strike discounted off-plan deals with individual investors, unless you can afford to take on an entire development and benefit from bulk pricing.

Developers are simply not geared up to sell single apartments to small investors. As an individual, you will almost certainly have to buy through one of the companies that specialise in putting off plan deals together. They negotiate the deal as a bulk buyer, and commit to taking on an entire development, or a significant number of properties, regardless of whether or not they can sell them on.

They then market them to their members or customer base, passing on the discount in full but charging investors a finder’s fee in return for the negotiations, the risk and the administration that they take on. Like any other service, there are good and bad providers, and there are those who charge reasonable fees, and those that are somewhat extortionate. Finder’s fees are fine, but when there are membership fees to add in on top, the fee structure can begin to look a little top heavy. 

If you don’t like the idea of ‘going it alone’ in off-plan, you might like to think about joining a syndicate that has off-plan as a key part of its strategy. Google off-plan syndicate and you’ll be spoilt for choice! Please do be careful    In this field there are a lot of sharks circling waiting for the unwary!!

Conclusion

It’s a well-kept secret that properties come onto the market every day at BMV prices. The exciting part is that, with the information and database driven web sites laid out here, you can go and buy them almost as easily as the seasoned, well connected property professional. Happy hunting!

 – Gearing

Whether you’re conscious of it or not, gearing is the one thing that places property

investment in the medium, to long-term. Streets ahead of other forms of investment.

So what is gearing? The nearest simile is a car

Gears in a car essentially allow you to do more with less. The revolutions per minute (revs, or RPM) of the engine stays the same and you keep your right foot in the same position, yet the car moves faster as you climb up through the gears.

Property financing also allows you to do more with less. 

Here’s an example.

Let’s say you have £10,000 to invest.

You consider three options – leaving it in an online bank paying 5% interest, investing it directly (and wisely) in the stock market and getting a 10% return, or using it as a 10% deposit to buy a property with a sitting tenant and a modest yield of 8%.

Which is the most lucrative option? On the face of it, the stock market looks the best.

But this is where gearing comes in to skew the picture in favour of the property.

Let’s work each one through using simple, rather than compound, interest.

The Bank

10,000 x 5% = 10,500 after 1 year.

Gain - £500

The Stock Market

10,000 x 10% = 11,000 after 1 year.

Gain - £1,000

The Property

10,000 used as a 10% deposit on a 100,000 house

The yield is 8% x 100,000 (NOT 10,000) = 8,000

Gain - £8,000

Even after costs are deducted, this is still spectacularly better than the other options. And this is taking no account of the possibility of capital growth. If the property increases in value by a modest 8% in your first year of ownership, then you can add another £8,000 on to double your gain!

The concept of gearing is where you use your money to take control of an asset with a value far greater than you have at your disposal. Your outlay is the same – you’re accelerator pedal and RPM are the same – but by gearing up, your investment is suddenly turbo-charged!

Compound Interest is the 8^th Wonder of the World (Albert Einstein)

And combined with gearing it is an amazing financial tool.

An often neglected source of BMV property is Overpriced Homes, Do not ignore them!

It's Not Always a Physical Defect that Drives Away Homebuyers

Why Don't Home Buyers Make Offers on Overpriced Listings?

    * They don't want to offend the seller. It goes against human nature to offer substantially less than asking price to a seller. It's insulting to the seller and embarrassing for the buyer.

    * Buyers erroneously believe that the seller knows the home is overpriced. They believe that if a seller would be willing to sell for less, the seller would simply lower her price.

    * Buyers also assume that the seller must have turned down low offers from other buyers because surely someone, somewhere along the line, had offered a reasonable price to the seller. But many times, there are no offers at all.

Now, not every home that is overpriced will ultimately sell for less than market value. But many homes that are listed at unrealistic prices are owned by sellers who are motivated and who are willing to listen to reasons why they should sell at a reduced price to you. If you find out that a seller has turned down multiple offers for less money, it might mean that it's just a matter of timing. 

There are overpriced gems hiding among the homes for sale every day. Don't just pass them by. You could be passing up an opportunity to buy into sheer profit.

How Do You Find an Overpriced Property?

The easiest way is to research the average days properties have been on market in your area.  It’s fairly easy to compute the D.O.M.  Go to www.oodle.co.uk  or a similar property analysis site. Check by postcode every property that has been on the market longer than the average D.O.M, (days on market)   Many agents refer to "average days on market," which is derived by adding all the days on the market of each property and dividing by the number of properties for sale. In a buyer's market, the D.O.M is generally higher because houses take longer to sell. In a seller's market, the DOM is fewer.

Examples: The average days on market in a hot property market generally fall under 30 days.

If your Estate Agent is a neighbourhood specialist, it is likely he has toured these homes and has intimate knowledge of condition and layout of these homes. Ask him to share this information with you. You can also ask your estate agent which of the homes he thinks are overpriced as well.

You will be amazed to learn that often agents don't tell vendors whether their houses are overpriced because agents don't want to offend anyone either! But agents aren't infallible. Sometimes they make mistakes when estimating market value prices for a seller.

Ultimately, however, remember that it is always the seller's responsibility to select the sales price.

Why Would a Seller Lower the Price?

  They offered the seller a sizable earnest money deposit to show that they meant business. And they also showed the seller a list of homes that sold in the neighbourhood at more reasonable prices.

Put a Human Face to the Offer

This is a people business. Sellers have an unexplained desire, sometimes buried deep inside; to know that the house they are selling will fall into the hands of a worthy buyer.   It's more than four walls, floors and a ceiling! A seller's house is a place where joy is shared, sorrows are expressed, hopes and dreams are crafted; it's a place of treasured memories.

When is the Best Time to Buy a Home?

 There are at least two days of the year that give buyers the edge.

Every spring Estate Agent signs start multiplying across the country. As soon as the For Sale signs appear, swarms of activity buzz in the streets as sellers, buyers and Estate Agents crawl out from wherever they have been.

There is nothing like a spring Property market. Offers fly over fax machines and mobile phones ring constantly. Everybody wants a deal, and everybody wants to sell. Typically the market is flooded with properties for sale. There is more on the market in the spring than any other time of the year.

It's also the worst time to buy a home. Except for one day! There is one day in the spring that a buyer will have the edge against all the other buyers.

The 2nd best day of the year to buy a home is Easter Sunday.

   * Easter falls sometime between March 22 and April 25.

    * It is the first Sunday after the ecclesiastical moon after the vernal equinox.

    * The vernal equinox is always March 21.

The 1st best day of the year to buy a home is Christmas Day. Refer back to repossessed property and bank sales

Nobody looks at homes on Christmas Day. But buying on Christmas Day is a good move. If you scout out the homes on which you'd like to make offers a few days before Christmas, you'll be better positioned. Why is Christmas Day so attractive?

    * House prices are at a 12-month low in December.

    * If a person has their home on the market over Christmas, that person is definitely serious about negotiating and selling that home. You can bet on it. Better yet, why not write an offer?

Of course, the key is to find estate agents who will work at Christmas.

What Day is the Worst to Buy a Home?

It's the last Friday in May. 

The problem that arises is not contingent on whether home buyers start looking for a home in February, March or April. The problem is many eventually settle on a home in April. Then, they make an offer with the completion date for the last Friday in May

Why is the last Friday in May the worst day to buy a home? There are many reasons, starting with competition from other buyers and ending with the actual move itself.

    * The best new properties sell first and at a higher price.

 Location plays an important role. If homes in the best condition at appealing prices are located in desirable neighbourhoods, many buyers will want them. Competition breeds multiple offers, so, sometimes buyers end up paying more than they had planned on paying.

    * You might not complete on time. Pending sales often peak in April, resulting in a larger-than-average volume of completed sales in May. Normal workloads for estate professionals can triple during this month, which can result in a backlog.

  Many people leave town for long weekends and are unavailable to work on your transaction. Sometimes, lenders can't process loan documents fast enough to keep up with demand. Fewer days to work in the week puts pressure on closers, too, meaning something has to give. So, it might be your file that gets pushed into June.

    * A delay in completion could mean paying a higher interest rate. If you have locked a mortgage for 45 days, that rate will expire at the end of that period. If rates go up -- often rising because demand goes up -- you could find yourself stuck with a higher mortgage payment due to the rate increase.

    * Removal Companies charge more. Moving companies know that many people want to move at the end of May. Increased demand equates to higher moving costs. And that's if you can find a mover to hire. Some movers are booked solid every weekend through July. 

Types of Property Markets

Although there are many variations and twists, basically property falls into three categories:

 Buyer's markets

      Buyer's markets exist when there are more houses for sale, than buyers. Because buyers have many homes to choose from, not every home for sale will sell. Most experts agree that if  property is on the market more than 6 months, it is a buyer's market. Also note that in buyer's markets, fewer numbers of buyers will result in fewer sales, which can skew median prices.

Buying in a Buyer's Market

Simply put, buyers' markets exist when there are a lot of homes on the market and very few buyers. If the number of homes on the market in your neighbourhood has been rising, it's likely that the days on the market have been increasing. Coupled with declining sales figures over previous months and home buyers are in an enviable position to negotiate. Here is how you can use the situation to your advantage.

 Request E-Mail Listings & Updates

Almost 80% of home buyers today start a home search online. However, many buyers are unaware that the data they are viewing could be dated. Many Web sites reboot every 24 hours. On other sites, agents sometimes leave expired and sold listings as active, hoping for sales calls. To avoid wasting your time, register your e-mail address with Rightmove, Oodle and Primlocation so you can receive daily changes of reduced prices and new properties on the market. This is one way to gain access to the same data agents receive. Compare this data with online home value sites and you'll see first-hand why the data your agent gives you will be more accurate.

In a buyers' market, you're in control.  Always renegotiate after viewing Home Inspections Reports,

All vendors have to obtain a home inspection report. Most contracts give buyers the right to cancel a contract if the home inspection reveals repairs or defects that are unacceptable to a buyer. However, if the repairs are minor, you might want to renegotiate the sales price. Caution: don't ask for a price reduction if the repairs were evident when you first saw the home or the seller might not be willing to negotiate with you.

Sellers realize that in buyers' markets, often they have to give a little something extra to the buyers to entice a sale. Don't be afraid to ask for a home warranty protection plan that covers you in the event an appliance breaks down or the plumbing or heating malfunctions. Normally these plans protect you for one full year from the completion date.

9. Ask for an Item You Don't Want

Did you like the sellers' dining room table? china cabinet? Fish tank? Ask for it in your offer and use it as a negotiating tool. Often this draws the sellers' thoughts away from price and directs those thoughts toward the personal property. If the sales details stated the washer and dryer are not included in the sales price, ask for them. If the sellers balk, tell your agent to say, "OK, if we leave the washer & dryer, are you then ready to sign the offer?"

10. Shorten Acceptance Period

There often is no reason to give a seller more than 24 hours to make a decision about your offer. If your agent is presenting the offer in person, he may ask for a decision upon presentation. But don't give them days to talk to Uncle Harry, their neighbour down the street or the co-worker who knows everything about property. You would be amazed how many property experts there are in the World!!! There are a lot more homes on the market and you want a fast answer.

If you are going to buy a home and can afford to wait for primo conditions, a buyer's market is it; there is no better timing. Here are a few advantages to buying in a buyer's market:

    * Lower sales price

      Sellers are more willing to wheel and deal because they know if they refuse to accept your purchase offer, they might not receive another. When fewer homes are selling, prices typically fall.

    * Buyers can command concessions

      Buyers can ask sellers to pay their conveyance costs, providing their lender will allow the credit. Buyers can also expect sellers will pay for special reports such as vermin inspections or roof certifications and a home warranty.

    * Contingent offers are more acceptable

      Sellers are generally more agreeable to accepting a contingent offer that is dependent on the buyer selling the buyer's existing home. An offer in the hand is better than no offer at all.

    * Request for repairs easily negotiated

      If the home is in need of repairs or updating its systems, sellers will often credit the buyer for the repairs or fix the problem(s) noted by a home inspector.

    * Buyers control the transaction

      Buyers can ask for longer inspection periods, extend closing deadlines and ask for early possession -- terms that would be automatically rejected in a seller's market.

Selling in a Buyer's Market

If a seller does not need to sell, there is no logical reason to put a home on the market in a buyer's market. Here are disadvantages to selling in a buyer's market:

    * Low  offers

      Sellers in soft markets lose equity. Little demand for homes puts pressure on sales prices, causing buyers to make lowball offers.

    * Buyers expect concessions

      Buyers will ask sellers to pay for closing costs, thereby lowering the seller's net proceeds.

    * Contingent offers are riskier

      If a buyer's home does not sell, neither will the seller's, and by that time, the number of buyers typically dwindle even more.

    * Buyers demand repairs

      All those little things sellers have put off repairing will pop up in the home inspection, and buyers expect sellers to fix them.

    * Sellers do not control the transaction

      Buyers tend to ask for "out" clauses that would let them walk away from the deal all the way to closing.

    * Seller's markets

      Conversely, in seller's markets, there are more buyers than available inventory. Because there are fewer homes for buyers to choose among, almost every home will sell. Typically, there is much less than six months of inventory in a seller's market. In extreme seller's markets, there is less than two months of inventory in reserve.

Buying in a Seller's Market

If a buyer has no urgency to buy a home, it's not a good idea to buy in a seller's market. Here are a few disadvantages to buying a home in a seller's market:

    * Top price

      Multiple offers are common. Sellers command list price and get it.

    * No concessions

      Sellers are reluctant to pay any of the buyer's conveyance costs or pay for inspections.

    * Contingent offers rarely happen

      Seller doesn’t want to wait for a buyer's home to sell.

    * Request for repairs are not honoured

      Sellers will typically tell buyers to purchase the home "as is."

    * Sellers control the transaction

      Most sellers will not bend from the original contract, regardless of circumstances, because there are three more buyers around the corner.

Selling in a Seller's Market

This is the best time to be a home seller. Here are a few advantages to selling in a seller's market:

    * Higher sales price

      The list-to-sales-price ratios are lower in seller's markets, meaning sellers command higher prices, sometimes over list.

    * Concession refusals

      Sellers refuse to pay buyer's conveyance expenses, and they often reject offers asking for seller-paid inspections.

    * Contingent offers are rare

      Buyers find it easier to sell their homes and realize sellers will not agree to a contingent offer with 10 buyers in the wings.

    * Buyers rarely request repairs

      Buyers still obtain home inspections but forego a request for repairs, accepting the property "as is."

    * Sellers control the transaction

      It's common for sellers to negotiate shorter inspection periods and to demand buyers waive certain contingencies such as independent valuation or loan contingencies.

    * Neutral markets

      Neutral markets are balanced. Typically, interest rates are affordable and the number of buyers and sellers in the marketplace are equalized. The scales don't tip in either direction, meaning the market is normal without experiencing volatile swings. Inventory is generally around four months, give or take.

      Note that good buys exist in neutral markets, but there are no overall indications that favour buyers over sellers or vice versa.

Summary: buy below market value property and sell in a sellers market at high end price.