If you are considering buying an industrial property for investment purposes, there are several guiding principles which should influence your purchase decision. One of these is to look out for properties that are priced at below market value (BMV).
BMV properties are those that are priced below their actual market value. In other words, BMV properties are selling at a discount to its fair value.
Here are the key benefits of investing in BMV properties.
Potential for better capital growth
When you are able to secure an industrial property at an attractive price, you have a higher chance of making better returns due to the savings you reaped from your lower purchase price. Buying into a BMV property gives you immediate paper profits. Should you sell your property at market value when its value has increased, you would have made a handsome return on investment.
The property market is usually cyclical. Buying a property at BMV cushions against a drop in valuation during a property market downturn. On the other hand, if you had paid full market value at the time of your investment and sell during a downturn when valuations are lower, this would translate into a loss. Thus, BMV properties offer better protection against a market downturn.
Lower loan requirements
Buying an investment property at a reduced price translates to a lower loan amount. In addition, your loan has to be paid back with interest. A lower loan translates to a lower interest payments in the long run. So overall, BMV properties help to lower the cost of financing your property as well.
Improved cash flow
While expenses such as utilities and property management fees stay the same, the savings achieved through lower lower loan repayments and associated financing costs translates into higher cash flow and subsequently better rental yield on your investment. The improved investment cash flow gives you more flexibility to handle unexpected scenarios such as higher maintenance costs or gives you room to adjust your asking rental during cyclical downturns.
While BMV investment properties offer benefits, it is not easy to secure a BMV property and the process involves quite a bit of research. You’ll need to do extensive due diligence to maximise the return on your investment.