Professional investors are experts at hunting down cheap homes. Here's how they do it - and how you can too!
It's every prospective homeowner's (and property investor's) dream to find the perfect property at a bargain price. Unfortunately, despite UK property prices being an average of more than 19% below their August 2007 peak, this is easier said than done.
How to buy below market value (BMV)
Exactly how do professional property investors and other astute buyers track down the biggest bargains? They always ask these five key questions:
1. What was the original sales price and what's the discount?
If you're being offered a property at a discount (for instance, by a property developer, house-building company or disillusioned landlord), then the first thing is to do your sums.
Find out how much the property was originally advertised at, and establish what price similar properties went for at their peak. Then work out how large a reduction you're being offered to buy the property today. If this discount isn't deep enough for you, then it's probably time to walk away.
2. If I intend to use the property myself, does it fit my needs and requirements?
This is a really vital question: if the property is to become your own home, is it in keeping with what you want as an owner-occupier? Obviously, there's no use buying a cheap two-bedroom flat if you're a couple with four children.
3. Can I get a large mortgage?
There's no point tracking down the property of your dreams, only to find that you can't get a large enough mortgage to buy it. Therefore, before making an offer, use an independent, no-fee mortgage broker to find you the perfect home loan.
[SPOTLIGHT]More than four years after the credit crunch started, getting a mortgage can still be tricky. Thus, be warned: in order to secure the best deals and lowest mortgage rates on offer today, you will need a deposit of at least a quarter (25%) of the purchase price.
4. Do I need to invest in the property to bring it up to scratch?
When buying a 'doer-upper', you must carefully and honestly factor in the costs of all building work, upgrading and decorating a property needs to make it useable or saleable.
When carrying out any improvements, your goal is 'synergy' -- for every £1,000 you spend, you add at least £1,000 to the value of the property. How many times have we seen Sarah Beeny warn guests on her Property Ladder show that their fancy, must-have extras will lose them a fortune?
5. Can I rent out the property?
The fifth and final question is whether the property is suitable for renting out. For example, a large, seven-bedroom family home is going to be hard to market in an area where the population consists mainly of students, pensioners and the low-paid.
Also, another related question is: can I rent the property, instead of buying it? In other words, if the figures stack up, it may be worth renting the place rather than running up tens of thousands in buying costs. With property prices continuing to drift downward outside of London, and sales still sluggish, there's no real rush to buy right away.
The pain in Spain
Spanish Hot Properties (SHP), an internet-based real-estate company in Spain, which deals in properties priced between €20,000 and €20 million, helped me put together those tips.
What's more, SHP has identified some bargain-basement properties in Spain which show just how steeply house prices have crashed in the Iberian Peninsula. Have a look at these three horror stories:
|
Property and location |
Original price |
Current price |
Price fall |
|
Two-bedroom apartment Samara, Marbella |
€360,000 |
€206,500 |
42.6% |
|
Two-bedroom apartment Banus Beach Gardens |
€950,000 |
€470,000 |
50.5% |
|
Two-bedroom apartment Marina de la Alcaidesa |
€720,000 |
€240,000 |
66.7% |
As you can see, property prices have taken a beating as the Spanish economy struggles with growth worries and 21% unemployment. In many cases, luxury flats have lost between half and two-thirds of their value, which is a financial disaster for developers, owners and lenders alike.
And there's nothing to say that this pain in Spain won't continue, especially if the euro-zone debt crisis worsens. Then again, if property prices fell on this scale in the UK, I reckon there'd be a flood of buyers queuing up to buy once more.
By buying property at below market value (BMV) and snapping up bargains, you create instant equity and reduce the risk of any future loss. Think of this BMV strategy as a safety-net for buyers of bricks and mortar!
More: Find magnificent mortgages | Avoid this expensive mortgage trap | Get 30% off your home insurance