Below Market Value – BMV Deals

Four years ago the term ‘BMV’ (Below Market Value) was banded around with the acronym ‘NMD’ (No Money Down), and properties were bought one day for a low price and remortgaged the very next day for a higher price.  This left little, if any, of the investors original money in the property, so the banks carried all the liability. BMV deals were the aim for investors.

As a quick and easy way for landlord’s to build vast portfolio’s quickly it was these highly geared landlords who suffered when the housing bubble burst in 2007 / 2008. Their over geared houses dropping in value, leaving them unable to remortgage and with the Standard Variable rate considerably higher many were required to ‘top up’ their mortgage payments each month with their own money. An unsustainable strategy for large portfolios.

In their desire to ‘get rich quick’ they had failed to recognise the cyclical nature of the property marketplace, and had gambled on the capital growth game. With the bursting of the housing market banks soon realised they had left themselves over exposed to these BMV and NMD evangelists, Next Day Remortgaging was closed down overnight and NMD rapidly disappeared from the investors radar and vocabulary.

The term BMV however lived on and is still utilised today. But what does it mean today? Below ‘which market value?’ and are there still BMV deals?

There is no doubting that you make your money at the time of purchasing a property and at its rawest form BMV is calculated as a % based on the actual purchase price of the property versus the open market value of the property,  the value that property has the potential to command ‘at that time’ on the open market, i.e you buy the house for £70k but it is worth £100k on the open market, so it is purchased for 30% BMV.

However like all statistics quoted BMV percentages can be highly misleading.

Often the BMV % quoted does not take into account any work required at the property to make it rentable.  So if we were to take the same example above and it required £9k of refurbishment the house has really been bought for £79k. (Remember also the refurbishment money has to be funded by your own cash, it can’t be included within the mortgage). This means in this case the true BMV is £100k – (£70+£9k)/100 = 21%.

Although still very attractive it’s not the initially quoted 30%. And those new to property investing can easily be mislead.

In fact I have seen this over exaggeration occurring time and time again, with refurbishment costs being generalised as ‘property is in need of a new kitchen and bathroom and decoration throughout’ or ‘property in need of some work’.  However, if you don’t do your homework and figure work up front you could easily make a decision to purchase a property which is not financially sound. And the equity you thought you had can soon be eaten into. That is why at Alton Property Partners we produce a clear and detailed projection of the refurbishment work, prior to quoting the BMV of the property and before an offer is made, as this way we have an accurate and honest BMV figure.

Likewise when ascertaining the financial strength of an investment, I believe you should not ignore any future financial commitments you have assigned to the purchase, for example second charges etc.

Some property investment companies hold a second charge on the property (either based on an agreed fixed amount or a % of the equity in the property at that time), they look for this to be repaid when the property is remortgaged in the future. This is all cost you need to take into consideration as once again it is real money (your money) which has to be paid. Although this money in theory does not need to be repaid until the market has risen (i.e a few years down the line) there are no guarantees with the housing market, so it would be wise to also take it into consideration upfront.

At Alton Property Partners we feel that the BMV values quoted can be so misleading that we actually charge our fee based on the ‘equity delivered to the investor’ after the refurbishment. The property is also 100% owned by them, so there is no need for future payments and our investors have the complete choice to remortgage or sell at any point in the future knowing 100% of the equity belongs to them.

 

Gill Alton

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Gill Alton is the founder of Alton Property Partners, which provides a comprehensive and personal Property Portfolio Building Service for investors in the UK.

Alton Property Partners manage the entire investment process, from sourcing property at a discounted value, co-ordinating the Mortgage, arranging the refurbishment, right through to ensuring it is ready for the rental market.

The service is specifically aimed to support those who recognise the value of a UK investment portfolio, but lack the time, or knowledge to be able to invest for themselves because they are full time employees or Business Owners. With full consultation and comprehensive financial analysis, clients can be assured that their portfolio of strong yielding properties will be built to exacting standards and they will be kept up to date every step of the way.

Having been involved in property for 16 years Gill has built a personal portfolio for her family, and in addition to Alton Property Partners, runs a Property Mentoring Business, Venus Property Mentoring which focuses on supporting new investors onto the investing ladder. Having originally left the Corporate world to be a Qualified Mortgage Broker, Gill’s husband now focuses on their family Mortgage Brokerage in Maidenhead – Alton Mortgages.

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Alton Property Partners
6 Bramble Drive, Maidenhead BerkshireUKSL6 3NX United Kindom 
Gill@altonpropertypartners.co.uk •0845-095-5060

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