Always Do Your Due Diligence When Investing In Property!
Although it is very important to buy for cash flow and to treat your property as a business, you also make your money the day that you buy. You want to be looking to achieve a significant discount from the value of the property if you can. This does not always mean a discount from the estate agent’s pricing as sometimes properties are priced to sell. This means a discount from what the property is truly worth. There are various online tools you can use to help guide you on this, such as website’s like RightMove and Zoopla. However, by speaking to local agents this is another way that will allow you to understand your local market and what properties are selling for.
Doing your due diligence on a property is extremely important. You need to be looking at a variety of things such as previous sales, using your local knowledge, and speaking to estate agents who you know and trust. Getting a feel for market value when doing your due diligence is important. When investors begin to buy properties and invest they are looking to buy below market value (BMV). This is because they are trying to buy the property at a discount, so that they lock in equity from day one which will minimise their risk long term.
A mistake that some investors can make, particularly new or inexperienced, is that they mistake buying below market value (BMV) for buying below asking price (BAP). The assumption of many people, of course, is that asking price equates to value. This is not always true. We cannot assume that the asking price reflects the true market value as this can be dangerous. Chances are that you will not know who has set an asking price, or how they came up with that figure. The asking price might be too high, or it could be too low, or it could be just right. As you become more experienced and get to know more agents within your area, you will begin to see patterns in how they price properties, and whether on average they tend to price too high or too low. Proper due diligence will give you a feel for how close to the true market value (MV) the property is, but do not ever assume anything. This is another reason why working and focusing in one area is so useful, as it allows you to get to know an area back to front, which in turn will give you a better chance of working out the market value of a property.
Saying that the market value can be hard to quantify and it is not always straightforward. There may not be any recent sales on a property that you are interested in purchasing. In this case you can speak to local agents to see if they are selling properties in that area and if there have been any recent sales which are not registered. If not what do they think they would sell a property there for if they were to list it. As you get to know agents well you will gain an understanding of which opinions you can trust and which provide a true reflection on market value. If you do use agents to provide an estimated market value on a property, it is advisable to ask at least three agents to get comparable views
- Peter Iwaniszewski