How should you Decide to Purchase a BMV deal?
Given the lack of fee consistency and transparency amongst sourcers and dealers who promote properties Below Market Value (BMV), you need to take some basic precautions in your decision-making process before you purchase a BMV deal.
Assuming that you are dealing with a trustworthy sourcer or dealer (this can be a big assumption), you should look at the information in a certain order before making the decision to purchase a deal.
We suggest this order:
1) The level of discount
2) The discounted price
3) The achievable yield
4) The fees involved, including the conditions to pay the solicitor
5) Additional information to ascertain the property location and condition
If you have a business plan to achieve a specific amount in your property portfolio balance sheet and income statement, and you keep reviewing this plan on a regular basis, you might also want to review your property acquisition system and procedures.
Your property acquisition procedures starts by the method with which you analyse your deals
Why are we suggesting this order?
All points above are important. However, you use a process of elimination by starting with the financial elements that tell you the most valuable metric. How much discount will you achieve with this deal: 5%, 10%, 20%, 25%, or 50%?
If your business plan dictates that you need a series of deals with at least 20% discount, you should not waste your time spending hours analysing the fee structure or getting a survey done on the property conditions.
Likewise, if you buy a BMV property on finance (let’s suppose you would if you are investing) then the achievable yield is an indispensable metric. Some would argue that it is the first piece of information you should look at. The message we want to convey is that the top 3 elements save you time and can be delegated in order to reduce the amount of deals you get in your inbox to only the most worthy ones.
The top 3 elements are part of your basic deal triage level. All deals must be discarded if they don’t meet your basic deal triage criteria.
Interestingly, we receive frequent reports from many investors and friends who complain that, despite lowering their criteria, they can no longer find a deal that suits their criteria.
Once they’ve applied their basic deal triage level, they find problems with fee levels from greedy BMV deal providers or inaccurate property financial information, which seriously complicates matters, delays completions, adds to transaction costs and, therefore, reduces, if not eradicates, their profit criteria.
After consulting with investors, friends and many deal sourcers, we understood that they all wanted to preserve the level of profitability, despite the current global and protracted financial crisis, and asked us if it was possible to do so.
Consequently, we produced a confidential report for a prominent BMV deal sourcing company based in London. Sorry, but we cannot name this company because we signed a Non-Disclosure Agreement (NDA). However, we can reveal certain details of our discussions and elements of our work because we were commissioned to produce the report and, subsequently, retained control of the intellectual property rights.
Back in October 2009, the most interesting fact was that the director of the BMV deal company finally understood the need to diversify and provide a more modern series of products and services to clientele in order to adapt to, and survive, the current economic climate.
