How to buy undervalue property

[long88]

if you follow his post (nathan).

most of his stuff are foreclosure, property with problem (termite, burndown), or out in stick. and hence below market value.

obviously one have to be prepared to pay for any property that have been offered through at any conditions. and the one that doesnt suit his requirement, he will just shifted it to the clients, and make $10k upfront + trailing commission from the loan. (not bad after couple of hours of talking).

in order for him to keep acquaring property, one must have cash flow to support the loan payment (rent)+ deposit for the new acquired property + rising prices is just a cream on top of the cake, and make it easier to flip the property to the other people.

if you see recently he posted land below market value in sydney, kellyville. that doesnt even make it into the market. or the gold coast foreclosure ? no one sees it until he make it known on the face book.

he must be on the market long enough, to know those people that want to move the property quick, without going through the standard process, and therefore not available to public.

with his business that he sets up now.. everything will be ok as long as the price of the property keep going up.

 

[gronk007]

I just read the entire 8 pages of that link...

Crazy stuff. Trolling, defamation, threatening to sue, unauthorised photos..

Whatever your thoughts on Nathan Birch, that forum (or this thread in particular) is pure debauchery!

 

[Joeyv]

"Below market value" is meaningless.

Whatever a property sells for is (by definition) it's true value to the market in which it was advertised.

Maybe the market was small, or it was only on the market for a short period, but property always sells for the "market value". The only exception is for "off market" transactions eg: between family members.

I don't agree.

I bought a mortgagee property and had it valued by a local agent who sells many similar property's and he came back with a valuation a lot higher than I bought it. He was also very surprised at the price I acquired it for.

You might think he is just overvaluing it to get a listing but I made it clear I was not selling. He also showed me a lot of comparative properties that sold for the value he was appraising my property as.

It was a mortgagee sale so the bank only cared about getting back what was owing on the property not what it was worth.

It was for sale near Christmas time, when a lot of people are not buying a house.

The real estate agent was 70 years old and may not have known the true value or maybe just did not care and wanted it gone.

I was lucky enough to be in the right place at the right time.

 

[BayView]

Agents know the values of properties well.

It's their job.

They will inflate a house value to the seller to get the listing; but they know the real value.

Sometimes, the really honest ones quote the actual value and will use examples of comparable sales to confirm their estimate - often they miss out on the listing as a result.

So, in almost every instance; every house that goes on the market is at -or near - the highest end of the hopeful sale price.

And then you come down from there to the real value. If the house is priced correctly at the start; it sells fairly fast.

The seller will then sell if they need to, but often they won't because their price expectation has not been met.

In short; most times folks buy a property which they think is undervalued- it is simply at it's true value.

My first IP was a townhouse that sat on the market for months and months (I was watching it). Asking price was $425k.

I got it for $390k.

Was it undervalued? Nup; just the correct price I suspect.

Had I offered $350k then yes; undervalued - but the owner was the developer of the project (4 townhouses) and he would have simply rented it out and the agent told me as much at the time.

Those properties that Nathan buys are often bomb blast sites which he does a reno on. At purchase, they are only worth what they are worth.

They weren't undervalued because they were not comparable to the market in the condition they were in.

The reno brings them back up to normal value, to a degree.

Buying undermarket is when you have two almost identical houses in the same neighborhood/street. One sells for say; 20% less than the other - that is undervalued.

But Vendors are not stupid; most times most know what similar houses to theirs are worth in the area, and often reckon theirs is better; hence worth more; so won't let it go for less, or if they do; not much less.

We had a guy in the very next street from us trying to sell his house for the last 6 years (that I know of - we were in the US before that) - every Spring the sign comes out .

No luck.

He finally woke up to himself and it finally sold for what it was worth - not undervalued.

 

[see_change]

We bought a property in Townsville BMV on the basis that the bank valuation at purchase came in above what we paid at the time of purchase with no reno etc

Private sale , not through an agent . Owner thought he was smart .

Cliff

 

[Moneyman_85]

Just read the first few replies on that link and if the bank manager can approve valuations does it matter? as your acquiring more property. And if you don't sell or sell in the distant future the prices (depends where the property is) would have risen anyway.

 

[Ricky Tarr]

We bought a property in Townsville BMV on the basis that the bank valuation at purchase came in above what we paid at the time of purchase with no reno etc

Private sale , not through an agent . Owner thought he was smart .

Cliff

That's not below market value, that's below the bank's valuation.

The market (ie: you) paid what you thought it was worth - ie: "market value".

 

[Jenko]

That's not below market value, that's below the bank's valuation.

The market (ie: you) paid what you thought it was worth - ie: "market value".

Yes however a bank will use their valuation to release equity allowing you to expend your portfolio so that is king. I would say MOST times bank valuations will come in under market value.

 

[Ed Barton]

Watch out for out of area re agents, some not all get it totally wrong and under value property, then it is a matter of being cashed up and ready to pull the trigger.

Some (many?) of the out of area listings I see are due to the vendor trying almost every local agent and a tiny agency from out of area takes the listing and promises the earth. The vendor finally recognises they've been asking too much and the out of area agent sells it (below what the first appointed agent could have).

Or the vendor doesn't like the big boys and lists with an obscure (small) out of area agent. Sometimes high, sometimes low.

 

[Ed Barton]

My experience of mortgagee (or such) auctions in QLD is that they sell at, or, slightly above comparables. So many buyers are willing to pay too much to get a 'bargain'.

It was a mortgagee sale so the bank only cared about getting back what was owing on the property not what it was worth.

I don't believe that is correct. A bank is required to get roughly market price for a property. A foreclosing bank would open themselves up to all sorts of trouble if they accepted a wining big of $300k if the market value of the property was $450k.

It was for sale near Christmas time, when a lot of people are not buying a house.

That might explain it.

If I was ever selling a property, and it was legal I would market it as "Mortgage in possession of divorced, deceased estate - no reserve"

I've been to one no reserve auction. There were TV cameras and hundreds of people. It sold around MV. Great way to market a property, as long as almost no one else is using the same marketing.

 

[Jk200sx]

Luck in one of my cases. I was looking at a property/land listed on line for 317K in Wynnum, and an associate mentioned to me that it was overpriced for what we wanted to do, and we pursued another block a few straights away. When that deal fell away, angrily I jumped back on line and saw the other blocks price dropped to 245K. I made an offer at 225K and then agreed to 235K. The listing was only a few minutes old when I called the agent, and the reason for the drop was that the seller was getting desperate.

 

[rogerl]

Allow me to weigh in here.
When you purchase a property on the market, whatever price you paid for that property is the market value. Why? Because if the seller could get more for the property, they would have. You are in competition with the market. So if you win (ie. offer the best price/terms combination), your purchase price and terms (yes, terms does come into it!) make up the market value of the property. Whether your winning bid/offer is below the asking price or below what other similar properties in the area sold/sell for, the price you have paid is the amount that the market has valued that particular property at.
If the bank valuation comes in higher, it does not necessarily mean that you bought at below market value. It merely means that you bought at below that bank's valuation. There is a difference between a valuation and the market value. Market value is the price that the market values the property at (ie. the price that the property was actually sold for), whereas a valuation is an educated estimate (with some valuers, it is more of a guesstimate!) as to what the valuer thinks the property is worth. It is not the market value until someone actually buys that property at that price.
Having said that, valuers used by the banks do attempt to match (or be lower) than the market value. But they do not always get it right! And it is also up for manipulation ...
But at the end of the day, whether it is the market value or the bank's valuation, it is all just semantics. If you bought below the bank's valuation, then good for you!
To the OP, don't worry about what or how other's are claiming in terms of buying below market value. Just concentrate on identifying properties that you can add value to (if your goal is to increase market or bank valuation) or properties that will appreciate over time (if your goal is to buy and hold).

 

[Eli1]

Some interesting comments and views of different people about BMV.

So after reading all comments, i came to conclusion that BMV is nothing but purchase price of property what buyer think is less as compared to same property sale price.

Probably BMV properties have some minor defects which are difficult to identified during inspection. Vendor don't want to rectify those defects/issues and sell the property slightly undervalue. Buyers think he got a bargain and seller thinks he saved money by avoiding rectification of defects. To elaborate my point; I am renting a place near Brisbsne CBD. Landlord recently purchased this property and I was the 1st person to move into this property. All good during 1st few days. Then suddenly there was issue with Central aircon system. Landlord called technician and rectify the issue. Few days passed and problem with electrical wiring appeared and suddenly no electricity in electric sockets. Landlord identified that it's because of electric stove fan so advised us not to use it. Then dishwasher stop working.

So I think in this case, vendor was aware of all these small issues but rather than rectifying issues, he offload property on slightly below market value. Buyer was happy that he got BMV property and seller save time and money. Win win for both.

 

[LeoT]

Some interesting comments and views of different people about BMV.

So after reading all comments, i came to conclusion that BMV is nothing but purchase price of property what buyer think is less as compared to same property sale price.

Probably BMV properties have some minor defects which are difficult to identified during inspection. Vendor don't want to rectify those defects/issues and sell the property slightly undervalue. Buyers think he got a bargain and seller thinks he saved money by avoiding rectification of defects. To elaborate my point; I am renting a place near Brisbsne CBD. Landlord recently purchased this property and I was the 1st person to move into this property. All good during 1st few days. Then suddenly there was issue with Central aircon system. Landlord called technician and rectify the issue. Few days passed and problem with electrical wiring appeared and suddenly no electricity in electric sockets. Landlord identified that it's because of electric stove fan so advised us not to use it. Then dishwasher stop working.

So I think in this case, vendor was aware of all these small issues but rather than rectifying issues, he offload property on slightly below market value. Buyer was happy that he got BMV property and seller save time and money. Win win for both.

I can state for a fact that learning, understanding and practising negotiating tactics/skills and the psychology around all that can greatly impact how well a buy you manage to secure. Not only can superior negotiating skills affect price but sometimes more importantly it can secure better terms of contract. Any serious investor should address this skillset if they havent already.

Of course knowing your market and, recent sales, what the property your looking at was bought for years ago, how many days on the market its been etc etc goes without saying.

 

[ZachAnSel]

One of my mentor mention, market is always moving. Since its hard to judge market value, and buy below market value hard as well. You may think you bought well, since the market trending up. But what if the market turn opposite..

He change the way I think, buy at or below market value still important element. But lesson learned for me is how you can do cosmetic reno. And learn how influence the banks/valuator

He also teach, every suburb in the market have market range. Observe well, and you will know your profit. He teach me why that house sold at higher market range at that time, and vice versa. From there you will know your profit estimate.

Buy lower range, do cosmetic reno and sell higher price range..

 

[truong]

In a perfectly competitive market the sold price is indeed the market value at that point in time. However there are cases, as some posters have pointed out, where competition is severely restricted for a whole range of reasons. A BMV buyer is one who takes advantage of these market inefficiencies.

When a whole class of inefficiencies is identified (as in the case of Nathan's fire-damaged properties, I assume) it can become a system to make money consistently.

 

[JamesP]

An old concept was to take advantage of the desperation/misfortune of others, which whilst highly immoral was also highly effective.

http://www.realestate.com.au/property-house-vic-morwell-118375507

Maybe try offering 85k to the poor bugger?

 

[Newbieatlife]

lol some ridiculous posts here on "no such thing as below market value"...

on the extreme, if an angry, recent divorcee wanted to get back at his ex by selling off his dream 6 bedroom Point Piper estate for $500,000 and some lucky sod picked it up, would you consider that below market value or "market value"???

I recently purchased a property in Beenleigh which was a divorce court order and the vendors had to delay settlement because they had to find a way to raise funds and pay back remainder of the loan. Needless to say, the purchase price was between $80 - $100k below what anything else had sold over the past 3 months in almost the exact same specs. I would consider that below market value. I believe the only real reason I managed to pick this up was by pure luck that only 2 people showed up to the auction (including me)

What I am saying is, below market value exists, and typically, they are not immediately apparent or easy to come by

 

[Bargain Hunter]

i agree with Truong, property by it's nature can have a whole range of inefficiencies the lend themselves to buying under market. We have bought under market on a number of occasions, frequently at auction.

Now many people would reason that an auction is the ultimate confirmation that the value if the property sold for what it was worth at that time but there are a whole range of factors that could result in the property mot meeting the market expectations.

The property we currently have for sale was previously bought at action and sold by an out if area agent. The next highest bidder only chanced upon the property on the day and did not have their cheque book. The seller wanted the property sold that day.

If auctions lead to the ultimate value every time then why sell any other way?

Inefficiency means profit.

Regards

BH

 

[bez23]

BMV? I only believe in good value vs bad value