Every property investor should be looking to acquire property at below market value. And buying at under market value is especially important in the current market.
Here’s why: Property bought at under market value offers scope for higher yields, helping to neutralise the impact of the investors’ stamp duty premium and restricted tax allowances. Buying at under market value offers prospects for better capital appreciation in times when forecasts for property price rises are low. In this Insider report we will look at some of the main ways to source good value property, and at what you need to know about each method.
Property bought at auction. Property offered at auction frequently sells for less than comparable property offered for sale by private treaty on the open market.
Important to know: Property sold at auction is not guaranteed to be a ‘bargain’. Competitive bidding may push the sale price close to, or even above, the current open market value. Important to check: What the current open market value of the property is before bidding.
Property suitable for refurbishment. Buying a property for renovation is probably the most well known way of buying at below market value.
Important to know: Property sold as suitable for renovation often attracts additional buyer interest, and elevates the price close to that of similar property in good condition.
Important to check: Cost of purchase + cost of renovation = less than the renovated value of the property. Important to do: Estimate renovation costs accurately.
Property that has scope for extension. Adding space is one of the simplest and most fundamental ways of adding value to a property.
Important to check: What planning consent is required. What the value of the extended property might be. Important to do: Estimate building costs accurately. Important to know: In general terms the cost of extending is similar in all areas but the value added is greater in areas of higher property prices.
Property suitable for development or conversion. For example, converting a house into flats. It could well be that the total value of the developed property in its new use exceeds the value of the original property in its original use.
Important to check: What planning consent is required. What costs are involved. What the value of the converted properties might be. What the value and/or rent of the developed property is likely to be.
Important to do: Estimate conversion costs and other overheads accurately.
Consider the issues that this report raises: Could property development be the new buy to let?
Commercial property for conversion. Commercial properties are frequently significantly cheaper per square metre than residential properties.
Important to know: Commercial property offers the best potential for securing a bargain when it is no longer viable as a commercial property in its existing form.
Important to check: What planning consent is required for conversion. Likely value of the property as a residential property. Important to do: Check suitability of the property as a residential property.
Property bought off plan. Property up for sale off plan, ie. before it has been built can be a way to secure a low price, as developers seek to launch a new development or sell off the last remaining units, at a discount.
Important to know: Property sold off plan is not always sold at a discount – new build property may even be sold at a premium. Important to check: What the open market value of the property is likely to be once completed.
Ex- local authority property. Ex-local authority property often sells for less than comparable privately-owned property nearby. However, likely rents are at a similar level, offering good potential for yields.
Important to check: The letting potential, likely yield and rent of the property. Important to know: Ex-local authority property often has reduced potential for capital appreciation.
Property of non standard construction. Always sells for less than similar property of standard construction, yet the achievable rent will be similar.
This report look at the ins and outs of buying property on non standard construction: Finding value: Investing in properties of non standard construction
Property offered for sale through express estate agencies. Property is sometimes offered at below market value through so-called express estate agencies, ostensibly on the basis that the vendor requires a ‘quick sale’.
Important to check: That the advertised price is actually less than the current open market value. It may be similar, or it may even be higher.
Property in up and coming areas. Some property gurus will advise that buying a property in an up and coming area is the perfect way to secure a property bargain. However, this is something that is always very difficult to call.
Important to know: Regeneration projects do not automatically result in rising property prices. Areas described as ‘up and coming’ often take a very long time to arrive, and often never do.
Important to check: How property prices in the so-called up and coming area have performed in the past. Important to do: Carefully examine the fundamentals underlying the local market and assess whether they tend to support future price rises or not?