If you’re embarking on a property investing journey, there are several principles you need to consider in your decision-making process. One of these is the principle of investing in Below Market Value (BMV) properties.
What is a BMV property?
In simple terms, a BMV property is a property that’s listed for sale at a figure that’s lower than its true market valuation.
Why would someone sell you a BMV property?
Here are some common reasons a property owner may sell you the property at a discount to comparable properties:
- The seller could be facing financial difficulties and requires the cash proceeds urgently
- The seller has found another property and needs to sell the existing property to pay for the property he or she is eying
- The seller is relocating abroad and therefore would like to close the deal as soon as possible
- The property is being repossessed
- The seller is getting divorced and is looking to sell the property as quickly as possible
- … among others
Benefits of investing in a BMV property
A BMV property can offer a distinct advantage for those who know how to find these gems. It is a gateway to potential profitability and investing in one can unlock several advantages. Let’s find out more.
BMV properties offer capital growth potential
Securing a property at BMV provides the opportunity for augmented returns as the property is already at a discount. Immediately, you have a paper gain. As the property’s value appreciates over time, selling it at a higher market value in the future can reap you positive returns.
Shields you against market fluctuations
The property market is usually cyclical and can be vulnerable to a drop in valuation during a property market downturn. Buying a BMV property cushions against a drop in value during market downturns.
Reduced loan commitment
Acquiring a BMV property means taking on a lower loan amount. This translates to lighter interest payments over the loan’s lifespan and helps to lower the cost of financing your property.
Lower loan repayments and related financing expenses increases the amount of positive cash flow from the rental income received from your BMV investment property after deducting costs such as utilities and other property management expenses. This leads to better rental yield on your investment. The increased cashflow also gives you more leeway to navigate unforeseen circumstances and gives you the flexibility to adjust your asking rental in response to cyclical downturns.