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Deal or No Deal – How to Decide

04/05/2010

If you look on the internet you don’t have to look very far before finding a post, link, blog etc. telling you how you can be an overnight property millionaire without putting any of your own “hard earned” in by investing in BMV (Below Market Value) or NMD (No Money Down) deals.

In my opinion, the really good deals, the 25%, 30% and even higher discounted deals should never get as far as an open forum before being snapped up but you never know!

This instalment will hopefully go some way towards helping the in-experienced investor to avoid the scams or bum deals that abound without spending any money at all on registration fee’s or buying leads or anything like that. All you need is an internet connection and a few minutes of your time to check out data that’s already in the public domain.

The most important action that you should take before entering into any sort of agreement to purchase property be it a “ready made” portfolio or a one off property is to undertake your own due diligence (DD). This means, in layman’s terms that you should check ALL of the details YOURSELF before committing. Any decent, reputable property sourcer will expect if not encourage you to do this BEFORE PAYING THEM ANY MONEY. If you are asked for a fee upfront…Walk away!

I’m not going to talk about NMD deals right now, that will be part of a later instalment. The purpose of this blog is to show you how to do your initial DD on a deal that you are either offered or you come across yourself on a forum for example.

The first thing I always look for is how much detail is there? There should always be at least the first half of the postcode. Maybe not all as the sourcer may well want to protect the deal to a certain extent. Anyone who is not prepared to divulge this however should be avoided, you could always offer to sign a non-disclosure agreement but never, ever pay a fee to find out an address.

Another ploy I come across a lot is sourcers changing or manipulating the name of an area often substituting an adjacent, more attractive location for the real one where the property is actually located.

Right then, you’ve looked up some deals being offered on a forum and seen some that take your fancy “Yes to 25% BMV” being a typical line to catch your eye. 25% discount is often a magical figure in the eyes of many, this is because most lenders within the current financial climate require a minimum deposit of 25% in order to lend to you on a Buy to Let (BTL) mortgage. You should be very wary of any organisation that tell’s you that you don’t need to put any of you own money in or, you’ll get your 25% deposit back as “cashback” as this may flout the terms and conditions of your mortgage or even worse, constitute mortgage fraud. The rules required are often referred to as CML rules which stand for the Council of Mortgage Lenders.

However, the Mortgage Code, which no longer exists, it remained in force until 31 October 2004, when the Financial Services Authority’s Mortgage Conduct of Business Sourcebook (MCOB) came into force, and the Code was withdrawn.

So you have found a property that you may be interested in, have established the area where it’s located, the source has identified both a current or open market value (OMV) and a discounted price, what next?

Example: HD4 – 2 bed terrace, OMV £90,000, outstanding mortgage £62,000 Yes to 25% OMV (£67,500)

You need to check that the OMV is relevant and reasonably accurate. If it isn’t, then the whole deal may well fall down.

The first port of call for me is the Rightmove website. Simply type in the postcode that you have, either first part or all of it and the click on the “For Sale” button. After this fill in just the following details – Property type & Number of Bedrooms. By ignoring the value range, it will give a better feeling for similar properties in the immediate area. Always, always check the box marked “Include under offer, sold STC..” as this will give you the details of recent sales that have been agreed in your target area.

The search will give you similar properties for sale in that postcode. Don’t worry if there are not any, just go back a stage and widen the search area from “This postcode only” to “within 1/4 mile” This will mean that your comparison is less accurate but should be about right.

A good indication is if there is a good balance between advertised properties and sold or STC properties, this indicates that it’s a reasonable area and properties sell well (Good if you want to sell on quickly or “flip” the property)

The working example shows up the following findings, this is the first page!

1.   2 bedroom terraced house for sale Moor End Road, Lockwood, Huddersfield

Offers in Region of £45,000

147 & 141a Moorend Road A two bedroom over-dwelling plus a derelict under-dwelling beneath. The over-dwelling has been partially modernised with a new bathroom suite and some redecoration to the first floor – ground floor still required. The under-dwelling must be approached with caution and o…

2 bedroom house for sale New Laithe Road, Huddersfield HD4

£49,950

Offered for sale with vacant possession-no vendor chain. This two bedroomed mid through terrace house. Being ideal as a first purchase or for the investor as a buy-to-let scheme and having gas central heating, double glazing plus a most useful attic room

2 bedroom house for sale New Laithe Road, Lowerhouses, Huddersfield HD4

£49,950

A spacious and affordable 2 bedroom middle through terrace house which also includes a useful attic room accessed via a fixed independent staircase and offering a multitude of uses. The property does require a general program of updating, as reflected within the asking price, but would make an…

2 bedroom house for sale Hawthorne Terrace, Crosland Moor, Huddersfield HD4

Offers in Excess of £55,000

A competitively priced 2 bedroom stone built rear terrace which is available with the benefit of No Vendor Chain and Immediate Vacant Possession. The property does require some general upgrading, as has been reflected within the nature of the asking price, but does include gas fired central he…

2 bedroom house for sale Moor End Road, Lockwood, Huddersfield HD4

£55,950

Offered with NO VENDOR CHAIN a deceptive two bedroom mid terrace property realistically priced to allow for improvements to be made. Conveniently placed for access to the local amenities provided and Huddersfield town centre. The property provides accommodation over three levels and briefly com…

2 bedroom terraced house for sale Moor End Road, Lockwood, Huddersfield

£55,950

MUST BE VIEWED AT THIS COMPETITIVE PRICE !!!! A two bedroom mid through terrace that provides good sized living accommodation. Having a garden to the rear, the property is offered with no upper chain and viewing is recommended to appreciate the potential on offer. Comprising: Entrance, Lounge…

2 bedroom house for sale May Street, Crosland Moor, Huddersfield

£59,500

A TIDY FRONT TERRACE……. Ideally suiting the INVESTOR/LANDLORD or first time buyer. Well placed for local amenities and BUS ROUTES. Comprising entrance vestibule, lounge, BASEMENT KITCHEN, 2 bedrooms and bathroom. Double glazed (apart from kitchen). NO UPPER CHAIN.

2 bedroom house for sale Dodds Royd, Berry Brow, Huddersfield HD4

Offers in Region of £62,950

Offered for sale with vacant possession and no vendor chain is this front terrace over-dwelling which is located to the popular area of Berry Brow. Ideally suited to the requirements of a first time purchaser or buy-to-let investor and providing two bedroom accommodation which features gas cen…

2 bedroom end of terrace house for sale Moor End Road, Lockwood, Huddersfield

£64,250

A two bedroom end through terrace, offered with no vendor chain, and at a realistic asking price. Having gas central heating and double glazing, the property provides accommodation on three levels, that comprises:- Hall, Lounge, Basement Kitchen and Store Room, Landing, Two Bedrooms and Modern …

2 bedroom house for sale Manchester Road, Cowlersley, Huddersfield

£64,950

TWO BEDROOM END TERRACED starter home is priced to sell and must be viewed. This ideal starter home is ideally situated close to local amenities and commuter links into Huddersfield. The accommodation briefly comprises of entrance hallway, lounge, L shaped

Now, you have the OMV value as stated in the deal. By comparison with the results from Rightmove, I would expect the stated OMV to be towards the lower end of the listed properties. Its always better to have a deal property “value up” higher than offered and therefore increasing the BMV than the other way around. I always scroll through as many of the listed properties as possible to get a better feel for the area and general standards. If there is a significant number of properties valued below the OMV stated then as before, you should consider walking away at this point.

In this example, there are 68 properties for sale on Rightmove for less than the “OMV” of £90,000!!

As a secondary check, I always use the mouseprice website to get access to all of the information, you will need to register but it is free and definitely worthwhile to do so. On this site you can obtain an approximate valuation of the property and, get a list of recent sales in the area that have been recorded at the HM Land Registry. The only downside I find with this currently is that if the market has been slow over the last couple of years, the 2007ish prices will be high so its worth looking a couple of years earlier than that as a rough guide.

Mouseprice also offers a local area guide which can be useful as can other websites such as upmystreet.

Unlike Rightmove, you may have to do a little more work on Mouseprice especially if you don’t know the exact address. The way to do this is to explore the properties listed until you find some that are comparable in style, size etc. Depending on how much time you want to spend, it is worth cross checking all of the properties that you listed in your Rightmove results as well.

Our comparison search identified this as a typical property in the area.

Property information
Address:
Postcode: HD4
Tenure:
Type: Terraceedit
Internal area: 83 square metres (approx)edit
Year built: edit
Bedrooms: 2edit
Plot area: 42 square metres
Free valuation estimate:
£75,480 give feedback What’s this?
Value range: £67,932 to £83,028
Transaction history:
Sale price Date Change AER
£74,000 23-10-2009 54.2% 6.7%
£48,000 28-02-2003
Detailed valuation report: Get a valuation report from the same system used by mortgage lenders
Estate agent’s valuation: Ask an Estate Agent for their opinion of the value your home for either sale or rental
This property is a two bedroom terrace. It has been given an estimated current value, which is displayed above by the Mouseprice.com valuation system. The property has sold twice since April 2000. The first time it sold seven years ago (28/02/2003) for £48,000. Six years later, it sold for £74,000.

Conclusion.

Hopefully you will have come to the conclusion by now that this “Agree to 25% BMV deal” probably isn’t at all really. In fact, the proposed sale price is near the real OMV in the first place. In the likely situation where a surveyor will value the property at the stated OMV figure and you should be sceptical of one that does. Remember, you could be committing mortgage fraud make sure that you get to see how the valuation was put together and confirmation, in writing that all material facts have been disclosed to your lender. Make sure that in every case, you undertake you own DD. Hopefully, this piece has shown you how simple is can be to confirm or disprove many of the “deals” out there in a few short minutes of your time and at no financial expense. Remember, if it sounds too good to be true, it probably is.

Disclaimer

The author is not regulated by the Financial Services Authority or any other body to give financial advice and the information herein is an expression of opinion by the author. The author recommends that you seek independent legal and/or financial advice before entering into any agreement in relation to property investment.

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2 Comments leave one →
  1. 17/08/2010 21:51

    Great blog Rob, very straightforward way of sorting the wheat from the chaff.

    BW,

    Rich

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