Below Market Value

Below Market Value

Below Market Value refers to the process of buying real estate property below the cited "open market value" and refinancing the property using a mortgage loan to enable the buyer (investor) to purchase the property from the seller (vendor) for little or "No Money Down".

The technique was made popular during the property bubble of the late 90s in the UK, US and Australia by well known investors such as Robert Kiyosaki's advisor Dolf De Roos in Australia/US, Ranjan Bhattacharya and Glenn Armstrong [http://markharrison.wordpress.com/2006/10/31/course-review-glenn-armstrong/] in the UK.

The technicalities:
*Investor buys the property for less than 85% of the open market value based on standard market appraisal. In the UK, this is provided by a RICS surveyor. Property is purchased using one day open bridging finance (a cash "bridge").
*The investor then immediately remortgages the property with the mortgage company/lender receiving up to 85% of the open market value of the property in advance. In effect, a vendor can buy the property for little or money down.clarifyme|date=September 2008|reason=Vendor?

Issues

# Discussions in private "BMV" Communities such as http://www.loveproperty.org cite current "no money down" techniques as not being effective as they were due to the current lack of market liquidity and credit crunch. Lenders are cautious about lending to investors an amount which is effectively 100% of the purchase price leaving themselves little real equity in the property should market conditions change.
# Banks are currently cautious of lending to investors based on techniques which for many mainstream lenders operate in the grey areas. Current lending criteria is conservative. [http://www.propertyworldforum.com/bmv/why-banks-wont-lend/]
# Investor could be liable for inland revenue clawback if vendor is made insolvent after purchase [http://www.landlordzone.co.uk/forums/showthread.php?t=8916]

References


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