The return offered from property has outperformed equities and gilts over the past 10 years.

UK property is as healthy an investment as you are likely to find anywhere. Over the medium to long term, UK property simply can’t be beaten.

Consider this:

In short, property is an ideal investment.

The statistics demonstrate that property is a great investment vehicle which means there is a high demand.

Over the medium - to long-term property prices rise which means that everyone wants in.

Due to these two factors (among many others) demand consistently outstrips supply which means an upward pressure on prices overall.

These three factors have led to property as an asset group performing incredibly well over the last 50 years or more. When we talk about a high-performance asset group that everyone wants, we’re talking about a market that is consistent, that is rising (in the medium- to long-term) and that is economically efficient. Right?

Well, not quite.

If you were to go out into your local town tomorrow and ask a hundred people if they thought it was possible to buy half-price houses, even cheap houses, how many do you think would laugh at you and perhaps think you were a bit crazy? My guess would be – a hundred!

That’s because the properties the average person looks at when they’re buying, when they’re selling, when they’re curious, tend to be properties in the windows of estate agents and what they see there is an efficient market that continues to rise (with the occasional plateau or down-spike). And when they think about it, they realise that makes perfect sense, because of the factors laid out above. Then, they look no further.

What they don’t see is that, even in a market that is super-efficient on the surface, there is another, deeper, more hidden layer where deals are done, where property is sold off ‘on the cheap’, and where there are half price properties available all the time.

Usually, these deals are offered to property professionals first. This is not because it’s a closed market; it’s simply because half-price properties are often half-price because the vendor is in a hurry to sell, for one reason or another. Property professionals can usually move fast in making a decision, in raising money, and in completing on the deal.

The important point to note is – it’s not a closed market. If you know what to look for, and where to look, there are half price properties out there for the taking.

The best kept secret in property is that you never have to pay the full price, providing you talk to the right people, look in the right places, and focus on the right deals.

So, lets consider:

In fact, by the time you’ve read through this page I guarantee you’ll have enough knowledge and contacts to pick up the phone (or click your mouse) and secure a half-price property for yourself today!

Who Sells Houses Cheaply? And Why?

If property is the ideal investment, and UK property is such a good proposition over the medium- to long-term, who in their right mind would sell properties at BMV prices?

Well, there are several categories of property vendor who regularly sell properties cheaply, and it’s usually a question of expedience, rather than sanity.

Here are the main ones:;

Let’s take a look at each one of these in detail.

Banks & Building Societies

In the property crash of the late 1980s, when the bubble burst and we were all paying 15% interest on our mortgages – remember those days? – Barclays Bank unwittingly became, for a time, the largest landlord in the UK. When you consider that position is usually held by the NHS or the MoD, that’s quite an achievement. The reason for this was the sudden deluge of repossessed properties. Many good people got caught in the so called negative equity trap in those dark years, where the value of their home fell below the amount they owed on it, and the interest rates made repayments almost impossible to meet. Add to that a rash of redundancies, and you have a recipe for disaster.

Contrary to popular belief, banks don’t want to repossess the home of a customer. They know the pain and hardship that causes – not only is a family being effectively made homeless, to add to whatever other woes they have at that time, but their credit record is effectively destroyed for years to come. They also have an image to maintain of being a caring, local, helpful institution. Plus, banks are not in the business of managing or selling off properties. So, when a bank finds itself the effective owner of a repossessed property, it’s main objective is to off-load it as quickly as possible. Time is of the essence – an empty property on the books represents tied-up capital that could otherwise be put to work elsewhere. It’s almost impossible to insure and is therefore a significant liability.

The other thing to understand here is that, while time is of the essence, price is often largely irrelevant. Banks insure themselves against a borrower defaulting on the loan, and the insurance company picks up the tab for any losses. Imagine the bank have just repossessed a property with a market value of £120,000, and an outstanding loan of £100,000. Their primary objective is to claim back their £100,000. So you can immediately see that they may happily sell the property for £100,000, regardless of the market value. But, if the property is damaged, or the market is flat, or it’s Christmas, or whatever, they might be prepared to take, say, £85,000, because they have an insurance policy under which they can claim back that extra £15,000 from the insurance company.

If you’re the buyer, you’re getting a £120,000 house for £85,000 – a discount of £35,000, or nearly 30%.

Large Property Holdings

We’ve already mentioned the NHS (National Health Service) and the MoD (Ministry of Defence). Other national and governmental departments may be included here, such as local authorities. The point to remember is that they all have significant property holdings around the country and, at various times and for various reasons, they decide to sell off some of what they own. For example, the MoD once had a vast number of houses around the country that were given over for the use of servicemen and their families. You can see them around any major military base, and even around some smaller ones. As budgets and manpower numbers shrink, and priorities change, many of these houses have become surplus to requirements and are sold onto the open market. Now, the attitudes here are not the same as the banks. The likes of the NHS, the MoD and local authorities have a public duty to maximise their returns on the sale of any property. (We could get into a long discussion here about whose properties we’re actually talking about here. After all, the government is an expression of us, the public. And the only assets and cash the government has belong to the taxpayer. But that’s beyond the scope of this article.) On the other hand, there are resource constraints. In other words, if the MoD want to sell 255 ex-service houses in various places around the country, it would be too expensive, time-consuming and labour-intensive to list each one separately with a local agent. Instead, they tend to sell through property auctions. And even then, using local auctioneers to ensure the property is auctioned locally may not be feasible either. It’s far easier to hand all 255 properties over to one of the large, London-based auctioneers like Alsops, let them sell them as they see fit, and present the MoD with a single cheque once the transactions are complete.

Pension Funds

Property is held as an investment by many of the major pension funds and, like any other investment, the properties are bought and sold periodically. When a decision is taken to sell, it rarely concerns a single property. So, as bulk sellers, their motives and methods are broadly similar to those described above.

Probate Sellers

A probate sale takes place when the owner dies, and the property has to be converted into cash in order to be distributed as part of the estate. Such a sale may be the express wish of the owner, or that of a beneficiary of the will, or it may be necessary because the owner died intestate (i.e. did not leave a will).

The property will often be sold at auction and, once again, the primary motive is often to get rid of the property as quickly and as expediently as possible. Of course, the vendor can always limit his or her downside by imposing a reserve price, below which a lot may not be sold. But a motivated seller may chose a very low reserve (relative to the market value of the property) or even decide not to have a reserve at all.

Distressed Sellers

The statistics for divorce rates in recent years make grim reading. Often, a divorcing couple jointly own a property, and circumstances dictate that this must be sold, the debt cleared, and the proceeds split, before they can move on to pastures new.

Again, the main aim is to get rid of the house, not necessarily to get the very best price for it. Of course, people aren’t stupid. They want a reasonable price for their property, but in some such circumstances they are prepared to accept a BMV price, seeing the difference as a premium for getting the sale completed quickly and without complication.

Private Landlords

If you’re a landlord yourself, you know how quickly things can change. One minute you’re coasting along, with every property more or less covering it’s expenses, and then –WHAM!! – you’re offered a drop-dead-amazing deal that you can’t possibly pass up. But you need to raise funds to do it, and you need to move fast. For the best of reasons, you become a motivated seller, and are prepared to accept discounted prices for your properties providing the buyer can move fast and pay you quickly.

In these circumstances, you’re likely to sell at auction. Of course, there are many reasons, other than the one outlined above, why private landlords may look to sell a property quickly, and be prepared to accept a lower price in return.

These are the main sources of bargain properties. There are other sources, and other scenarios that bring properties onto the market at BMV prices. All you need to remember is that such sellers are out there right now, and properties like this are selling every day.

How Can I Get Involved?

Of course, it’s no easy task, searching for bargain properties. You have to know where to look. You need access to specialist agents. You need subscriptions to a range of different databases. And, most of all, you need to spend the time, not only to find suitable properties in the first place, but also to research them, conduct searches and surveys, instruct solicitors, arrange financing and so on. If you are serious about investing in property, then you already know that your profit is in the purchase price. Buying property at BMV prices can make the difference between taking seven years to double the value of your investment, and taking three. If you have the time to track down these properties then a good place to start is The Resource Page of my website, where you’ll find links to many of the sources I’ve used in building my own portfolios.

Alternatively, consider a subscription to the Property Bargains Bulletin. Read more about this unique service here or you can just go right ahead and subscribe.

Now, read on for the Five Sources of Bargain Properties…

Five Sources of Bargain Properties

Now we know that there are properties coming onto the market all the time at BMV prices. We know who’s selling them and, broadly, why they are selling them at such low prices. Now it’s time to discover where you can go to source such properties, and how you go about tracking them down, investing in them and adding them to your portfolio.

Let’s be clear about one thing. You won’t find half-price properties at all of these sources. However, you will find them at at least one – regularly. And, as a bonus, the final source is where you can find properties for no cost whatsoever. That’s right – Free and Gratis!

There’s a lot to think about, so let’s get started.

Source 1 – Property Auctions

These are not the closed shops they were a couple of decades ago. Property auctions are now user-friendly operations that encourage the attendance of seasoned investors and newcomers alike. Indeed auctioneers, though they are working for the vendors to get as high a price as possible for every lot, are more than happy to help you with any queries you may have, whether they are general ones, or about a specific lot. However, auctions are not for the faint-hearted. It’s a high-energy, frenetic atmosphere in which it’s very easy to get pressured into a bidding war for which you weren’t prepared.

If you’ve never been to a property auction before, go along as an observer. You’ll be made welcome, and you can get the feel for it without having the pressure of bidding for a property. If you want to learn more, there’s an excellent book on auctions. It’s called “Property Auction Secrets – 19 Novice and Expert Strategies for Profitable Buying and Selling at Auction” and it’s available from our Property Store. It would be churlish to give away all nineteen strategies here, but I will touch on three, just to give you a flavour. (Thanks to Damon Leigh and Property Secrets, the author and publisher respectively, for permission to reprint the following three strategies).

Looking for Ugly Ducklings

There’s a strange truism in the property market – people tend to under-estimate the cost of structural repairs and over-estimate the cost of largely cosmetic work. Also, if the cosmetics of a property are truly terrible, this can have a sufficiently strong emotional effect on potential buyers to put them off. If you’re not looking for a full-blown renovation project, the best properties to seek out are the run-down, shabby ones. For emotional reasons, these will attract less attention from the crowd and, consequently, the price will remain depressed. Providing you can keep your emotions in check, and be sure there are no lurking structural issues, shabby properties can be turned into the best of bargains.

Look for Unmortgageable Properties. This is a contrarian strategy, but only suitable for those who can buy investment property without the aid of a mortgage. Mortgage companies simply won’t touch properties with structural faults until these faults have been rectified. So how can a property that’s falling down be classified as a good deal? Well, in reality, these unmortgageable properties are not generally falling down at all. The reason banks are wary of them is that they are not in a fit state to sell quickly and recoup their money, should you default on the payments. That’s all they’re really interested in. The fault may be a crack that signals subsidence, for example, but it may be decades old, and the subsidence may have stopped long ago. Of course, it’s worth getting an expert investigation into it, but in many cases you’ll find that the problem is an old one that no longer exists, the damage is not significant to the structural integrity of the house, and there’s no urgent need to do anything about it. The upshot of this is that you could pick up such a distressed property for perhaps 50% of it’s repaired value; it’s a great combination of low interest on the auction floor, because of the structural and financing problems, and a low reserve price to ensure the place is sold. If you can repair the damage for less than 50% of the repaired value, you’re in profit. Or you could let it at the full rate on the basis that an old crack isn’t going to impinge at all on the tenant’s safety or their enjoyment of the building, with the idea of repairing it in a year or two. And that will translate into a fantastic yield on your investment.

Look for Unsold Lots.

If you find yourself in a position whereby you’ve done all the research on a particular property, checked it out as best you can, decided on your upper limit, gone along to the auction, got involved in the bidding, only to see it withdrawn as it failed to reach it’s reserve, then make an approach. An unsold lot does no one any favours. The auctioneer misses out on his commission. The vendor is stuck with a property he doesn’t want. No one is happy. So when you come along with an offer a little over the final bid from the floor, you’ll be welcomed with open arms. Now that’s not to say you’ll necessarily get it for less than the reserve (although you might). But the auctioneer and the vendor are likely to be keen to help you, and drop large hints as to what you’ll need to pay to secure the property. This is a strong position to be in. Don’t be tempted to go over the limit you set yourself, and don’t be afraid to negotiate hard. Walk away if you don’t think they’re playing the game. If they chase after you, your position just gets stronger. And if they don’t? Well, there’ll always be another property.

The main point here is to move fast. The vendor may actually be in the room, fed up that he hasn’t sold the property, and will be ready to listen to you. Approach the auctioneer at the earliest opportunity – perhaps during a break – and get things rolling. (A word of warning here, and one that applies throughout – Buyer Beware! When properties don’t sell, it may be for a good reason. However, buying post-auction does give you more time to do your research, and the last bid shows you what at least one other person was prepared to pay for it). For a full list of property auctioneers in the UK, contact Peter Parfait at Property Auction News. For an excellent treatise on buying at auction, plus nineteen strategies for maximising profits, take a look at ‘Property Auction Secrets’ by Damon Leigh.

You can also join one or more of the online databases –

www.auctionpropertyforsale.co.uk
www.property-auction-database.co.uk
www.repossessedhousesforsale.co.uk - this one has a slightly misleading name and is, in fact, an auction site.

Source 2 – Repossessions

In a rising market there are fewer repossessions than there were in, say, the early 1990s, when the floor fell out of the property market and many were caught in the negative equity / redundancy trap. Fewer, but they’re still there.

It’s sometimes possible to find repossessed properties through friends who work in financial institutions, particularly banks and building societies. However, the need for openness and probity in the selling process generally means such properties go to auction.

Indeed, in 2001, according to government figures, there were 27,000 repossessions in the UK. Every one of these will have been sold by the repossessing mortgage lender in order to get at least some of their money back. A fair proportion are sold at auction.

In an auction catalogue, you can spot them by scanning the sellers for each lot. If the seller is a bank or building society, the chances are it’s a repossessed property. Also, look for tell tale phrases such as;

Elsewhere, mortgage companies are obliged, by law, to advertise the fact that they’ve had an offer on a property and, if there are no better offers within a stated timeframe, it will be sold. These announcements tend to be buried away in the smallest classifieds in a local newspaper, but they’re worth looking out for to guide you to repossessed properties.

You can also approach the mortgage companies directly. Sometimes they will agree to let you have a list of properties they are selling. (For a more-or-less complete list of UK lenders, see Appendix 2).

When you’re buying a repossessed property, there are a few extra things to watch out for, in addition to those associated with any property purchase (such as surveys, searches and the like). Primarily, you need to be certain that the former occupiers' debt problems don't affect you. The credit reference agencies, (Experian and Equifax) records rely on addresses and postcodes. You may find that they inadvertently assume you're connected to the former occupier. Check this after a couple of months by contacting Experian or Equifax and asking for a copy of the information they hold on you. You'll have to pay a £2 fee for this. You can do it online, too. They should send you a copy of the information within seven working days, and they'll include information about how you can change the record if it's incorrect. Don’t wait until you’re turned down for credit! That rejection alone will affect your future rating, regardless of the circumstances.

Apart from watching the credit situation, you'll probably have to pay for the utilities to be reconnected.

Source 3 – Reversionary Properties

Investing in reversionary properties is almost certainly the easiest and lowest-risk way to invest in residential property, with the highest potential return. You simply buy residential properties from elderly homeowners who need to raise capital and increase their income. On completion of your purchase, your solicitor grants them a lease. They continue to live in the property, but as your tenants. They only pay a nominal rent so, to compensate you for this, you buy these properties with a discount of up to 60% off their vacant possession value. When the property is vacated, whatever the reason, you can then let it at the full market rent, or sell it with vacant possession for the full open market value. You profit from the 60% initial discount and 100% of all its appreciation since you bought it. But there are many other benefits;

There are only two vendors of RPIs to individuals in the UK, as far as I am aware. I have personal experience of just one of these – Cavendish Property Investments – and I have no hesitation in recommending them to you.

Source 4 – Off-Plan Purchases

Buying a property off-plan has become rather popular over the last few years, and many private landlords and property investors have made it a central plank to their investment strategy.The basic premise is that a developer, keen to sell the properties s/he’s planning to build quickly, is prepared to accept a lower price in return for a rapid exchange of contracts, typically before the development is complete, and sometimes before it’s even begun.

From the point of view of the developer, the deposits paid by the buyers become working capital, or ease their debt burden on the project. You, as an investor, can enjoy four major benefits;

a. You are buying a brand new property for typically 10% or 15% BMV.
b. You are gaining control of a property for just the outlay of a 5% or 10% deposit, with nothing more to pay until completion.
c. You have the benefit of the notional capital growth between the time you exchange and the time you complete. This can be anything from a few weeks to a couple of years, depending on the development.
d. If you get it right, you can finance to buy on completion, then immediately refinance at the higher value – due to the combination of the initial discount and the capital growth between exchange and completion – and thereby extract your deposit.

Here’s how an off-plan deal might work.

Let’s say a developer has planning permission for thirty apartments on a city centre site, and is due to ‘break ground’ in the next few weeks. The plans and artists impressions are all drawn up, the work crew are booked and ready, and it’s just a case now of getting the apartments built. Similar apartments in the area, with a similar spec, are selling for £160,000. In a year’s time, when the development is due to be completed, they are expected to be selling for £175,000 (given current growth rates). The developer agrees to sell some or all of the apartments off-plan at a 15% discount to the price today, i.e. £136,000, or a discount of £24,000. As the investor, you exchange and pay a 10% deposit today (£13,600) and then do nothing for a year. On completion, you raise finance on the buy-to-let basis of 85% of the purchase price (£115,600) and find an extra 5% yourself (£6,800). Then you immediately have the apartment valued to ascertain the actual value (£175,000), refinance to 85% (£148,750), pay off your first mortgage (£115,600) and pocket the difference(£33,150).

In this way you have taken back your 15% deposit (£20,400) and made an extra £12,750 on top. Very nice! However there are, as you might expect, a few potential pitfalls that you really must be aware of, look out for, and factor in to your planning for the ‘worst case scenario’, just in case.

No Discount!

When looking at a deal, you have to be very wary of the discount stated. The developer will, of course, want to make the deal as attractive as possible, and therefore make the discount sound substantial. However, it’s not beyond the realms of possibility that such a discount may be over-stated. In other words, the price given at the outset, for the apartments if they were built and ready today, may be 10-15% higher than reality, in which case the discount is not real. To get around this, do all you can to satisfy yourself that the discount is a true one. Research similar properties in the area. Look at what similar properties sell for, and not just the advertised price. Find out what the capital growth picture is for the area. And look into future demand projections for rental property (if you’re intending to let) – are there new employers moving into the area? Is there heavy investment expected? Are new transport links being planned? Even if you fully satisfy yourself that the discount is real, it still pays to be cautious. The people who put together the ‘Deals’ over at www.propertysecrets.net council that the deal should be attractive even without the discount. In other words, if you’re going into a deal for the discount and nothing else, it may be better to walk away.

No Growth!

Other than research, there’s not a lot you can do about it if the local or national market suddenly plateaus or falls. If the local market is currently rising by 8% a year, you must find out all you can, of course, about the factors that might keep it at 8%, or push it up to 12%, or take it down to 0%, or even reverse it to –5%. Then, you must make your own judgement as to the risk of zero or negative growth between your exchange and completion. Build it into your worst-case planning; how does the deal look if, a year down the line, you’re completing on a property that hasn’t gone up at all? Remember, if the growth projections the developer makes (and you accept) turn out to be wrong, and your property doesn’t grow in the year or so it takes to build, then that removes your refinancing options, and means your deposit remains tied up in that property until the market moves upwards once again. Will you be able to handle that?

No Rental Coverage!

A similar reality on refinancing strikes if the value of the property does as you expect, but the rents in the area drop from your initial projections, perhaps because of a temporary over-supply of rental property. I had exactly this situation a couple of years ago. I was offered some off-plan apartments in a good city-centre location at a 15% discount, and almost a year to completion. I decided to go for two apartments in the last of the three phases of the development, on the basis that I’d get the longest period of capital growth before completion. That part of the plan worked fine. What I failed to factor in was that Phase 1 properties, the first to complete, generated exactly the sort of rents we all expected from the outset. However, Phase 2 apartments all made slightly less because Phase 1 had soaked up much of the initial demand. By the time I completed in Phase 3, of course, rents were right down. This put me in the situation where the value of my investments were what we expected them to be on completion but, despite this, I couldn’t extract my deposit because I didn’t have the required 130% repayment coverage from the rents.

No Rental Demand!

In a similar way to capital growth, you can do as much research as possible on what similar properties are getting before you exchange, as well as the likely scenario for the next year or two. However, if rental demand suddenly drops off for reasons unexpected (or not spotted, as in my case above!) then you’re at the mercy of the market. In terms of deciding whether or not to go ahead with a deal, you need to be sure that you can still make it work, even if rents remain static or fall below expectations.

High Fees!

It’s rare that developers strike discounted off-plan deals with individual investors, unless you can afford to take on an entire development and benefit from bulk pricing. Developers are simply not geared up to sell single apartments to small investors. As an individual, you will almost certainly have to buy through one of the companies that specialise in putting off plan deals together. They negotiate the deal as a bulk buyer, and commit to taking on an entire development, or a significant number of properties, regardless of whether or not they can sell them on. They then market them to their members or customer base, passing on the discount in full but charging investors a finder’s fee in return for the negotiations, the risk and the administration that they take on. Like any other service, there are good and bad providers, and there are those who charge reasonable fees, and those that are somewhat extortionate. Finder’s fees are fine, but when there are membership fees to add in on top, the fee structure can begin to look a little top heavy. If you want to get into off-plan deals, there are plenty of agents around who offer the service. These include…

www.propertysecrets.net/deals
www.propertyassociation.co.uk
www.buyproperty4less.com
www.offplan-investor.com
www.1stpropertyinvestment.co.uk
www.bestpropertydeals.com
www.veenagrewal.tripod.com
www.asset360.co.uk
www.urbaninvestor.net
www.youngproperty.com
www.ready-2-rent.co.uk
www.offplandevelopments.com

If you don’t like the idea of ‘going it alone’ in off-plan, you might like to think about joining a syndicate that has off-plan as a key part of its strategy. Google off-plan syndicate and you’ll be spoilt for choice!

Source 5 – Abandoned Property

Click here

Conclusion

It’s a well-kept secret that properties come onto the market every day at BMV prices. The exciting part is that, with the information and contacts laid out here, you can go and buy them almost as easily as the seasoned, well connected property professional. Happy hunting!

Appendix 1 – Gearing
Whether you’re conscious of it or not, gearing is the one thing that puts property
investment, in the medium- long-term, streets ahead of other forms of investment.
So what is gearing?
Gears in a car essentially allow you to do more with less. The revolutions per
minute (revs, or RPM) of the engine stays the same, and you keep your right foot in
the same position, yet the car moves faster as you climb up through the gears.
Property financing also allows you to do more with less. Here’s an example.
Let’s say you have £10,000 to invest.
You consider three options – leaving it in an online bank paying 5% interest,
investing it directly (and wisely) in the stock market and getting a 10% return, or
using it as a 10% deposit to buy a property with a sitting tenant and a modest yield of 8%.
Which is the most lucrative option? On the face of it, the stock market looks the best. But this is where gearing
comes in to skew the picture in favour of the property.
Let’s work each one through using simple, rather than compound, interest.
The Bank
10,000 x 5% = 10,500 after 1 year.
Gain - £500
The Stock Market
10,000 x 10% = 11,000 after 1 year.
Gain - £1,000
The Property
10,000 used as a 10% deposit on a 100,000 house
The yield is 8% x 100,000 (NOT 10,000) = 8,000
Gain - £8,000
Even after costs are deducted, this is still spectacularly better than the other options. And this is taking no
account of the possibility of capital growth. If the property increases in value by a modest 8% in your first year of
ownership, then you can add another £8,000 on to double your gain!
The concept of gearing is where you use your money to take control of an asset with a value far greater than you have at your disposal. Your outlay is the same – you’re accelerator pedal and RPM are the same – but by
gearing up, your investment is suddenly turbo-charged!