What does BMV mean?

BMV (Below Market Value) refers to a property being purchased for less than its current open market value. This strategy is often used by investors to secure discounted properties that offer strong rental yields or capital appreciation potential.

Why Would a Property Sell BMV?

• Motivated Sellers – Owners may need a quick sale due to financial difficulties, relocation, divorce, or inheritance.
• Repossession or Distressed Sales – Banks or lenders selling foreclosed properties may accept a lower price.
• Off-Market Deals – Some properties are sold privately to investors at a discount to avoid estate agent fees and long sale processes.
• Bulk Portfolio Sales – Investors selling multiple properties in one transaction may offer discounts.
• Lease or Structural Issues – Properties with short leases, planning restrictions, or required renovations may sell for less.

BMV Property Risks & Considerations

• Due Diligence – Ensuring the valuation is accurate and the discount is genuine.
• Mortgage Restrictions – Some lenders may not finance heavily discounted properties.
• Legal Compliance – Avoid unethical “BMV schemes” where sellers are misled or pressured into selling at a loss.
• Exit Strategy – Understanding the long-term investment potential, whether through buy-to-let, flip & sell, or refinancing.

“Tenanted” means that a property is currently occupied by tenants who are renting it, rather than being vacant. This can apply to residential, commercial, or mixed-use properties.

Why Does It Matter?

1. Rental Income from Day One – A tenanted property generates income immediately upon purchase.
2. Buy-to-Let Investors Prefer Tenanted Properties – Investors often seek tenanted properties to avoid the hassle of finding new tenants.
3. Impact on Property Value –
   
   • A long-term tenant with a stable rental history can make a property more attractive.
   • If tenants are paying below-market rent or have short-term contracts, it could lower the value.
4. Legal Considerations –
   
   • Assured Shorthold Tenancy (AST) agreements govern most residential lettings in the UK.
   • Buyers must honour existing tenancy agreements until they expire.
5. Financing Implications – Some mortgage lenders have different criteria for tenanted vs. vacant properties, especially for buy-to-let loans.

Yield is a key metric used by property investors to measure the return on investment (ROI) of a rental property. It is typically expressed as a percentage and helps assess how profitable a property is in relation to its cost or value.

Types of Yield

1. Gross Yield – The basic measure of rental return before expenses.
   Formula:

Gross Yield=(Property PriceAnnual Rental Income​)×100

Example:

1. • Purchase Price: £200,000
   • Annual Rent: £12,000 (£1,000/month)
   • Gross Yield: (£12,000 / £200,000) × 100 = 6%
2. Net Yield – A more accurate measure that accounts for operating costs (e.g., maintenance, management fees, insurance).
   Formula:

Net Yield=(Property PriceAnnual Rental Income−Expenses​)×100

Example:

1. • Gross Annual Rent: £12,000
   • Annual Expenses: £2,000
   • Net Yield: (£12,000 – £2,000) / £200,000 × 100 = 5%
2. Rental Yield vs. Capital Yield
   
   • Rental Yield focuses on income from rent.
   • Capital Yield (Capital Growth) refers to the increase in property value over time.
   • Total Yield = Rental Yield + Capital Growth

What Is a Good Yield?

• 5-7% – Common for buy-to-let properties in the UK.
• 8%+ – Considered high yield, often found in HMOs or properties in high-demand rental areas.
• Lower Yield (3-5%) – Typically seen in prime locations with strong capital appreciation potential.

New question: What is considered a good yield?

A good yield on property depends on factors like location, property type, and investment strategy. However, here are some general benchmarks:

General Yield Benchmarks (UK Market)

Factors Affecting Yield

1. Location – Cities with high rental demand and lower price points, with a more blue-collar profile or young up and coming professional profile or suburbs of cities, tend to offer better yields than prime areas like London, Manchester and Birmingham centres.
2. Property Type – HMOs and short-term rentals generally yield higher than single-lets.
3. Purchase Price – Buying below market value (BMV) improves yield.
4. Tenant Type – Professional tenants, students, or holiday renters can impact income stability.
5. Expenses & Management Costs – Higher costs (e.g., maintenance, licensing) reduce net yield.

How to Calculate a Good Yield?

A quick rule of thumb:

• Gross Yield: Aim for 6%+ for a solid return.
• Net Yield: After deducting expenses, 5%+ is generally good for buy-to-let.
• HMO/Serviced Accommodation: 8%+ is considered strong.

Capital Appreciation refers to the increase in a property’s value over time. This growth happens due to factors such as market demand, infrastructure development, economic growth, and improvements to the property itself.

Key Aspects of Capital Appreciation

1. Natural Market Growth – Property values tend to rise over the long term due to inflation and increased demand.
2. Location Matters – Areas with strong economic growth, good transport links, and regeneration projects tend to see higher appreciation.
3. Supply & Demand – Limited housing supply in high-demand areas can push prices up.
4. Property Improvements – Renovations, extensions, or conversions (e.g., turning a house into an HMO) can increase value.
5. Economic Factors – Interest rates, government policies, and employment rates influence property prices.

Capital Appreciation vs. Rental Yield

• Capital Appreciation is a long-term growth strategy, focused on increasing property value.
• Rental Yield provides short-term cash flow from rental income.
• Investors often balance both to maximize returns.

Example Calculation

• Property Purchase Price: £200,000
• Value After 5 Years: £250,000
• Capital Appreciation: £50,000
• Percentage Growth: (£200,000£50,000​)×100=25%

What does buying a property with Equity in place mean?

Buying a property with equity in place means purchasing a property where the existing owner already has a significant amount of equity built up, and the buyer can benefit from it in the deal. This can happen in a few different ways:

Key Scenarios Where This Applies

1. Below Market Value (BMV) Purchase
   
   • If a property is worth £250,000 but you buy it for £200,000, you immediately have £50,000 of equity in place.
   • This built-in equity can be useful for refinancing or securing better loan terms.
2. Mortgage with Low Loan-to-Value (LTV)
   
   • If the seller has a low mortgage balance (e.g., only owes £100,000 on a £250,000 property), they have £150,000 of equity in place.
   • This can make it easier for a buyer to negotiate creative financing options like seller financing or deferred payments.
3. Vendor Financing (Seller Agrees to Leave Equity in the Deal)
   
   • In some cases, the seller may agree to leave part of their equity in the property and allow the buyer to purchase with a smaller deposit.
   • Example: Instead of paying £250,000 upfront, the buyer may pay £200,000 now and the remaining £50,000 later.
4. Lease Option or Delayed Completion
   
   • Investors sometimes structure deals where they control the property first (via a lease or option agreement) and benefit from its existing equity before completing the purchase.

Why Is This Beneficial?

• Instant Equity Gain – The buyer can benefit from an immediate increase in net worth.
• Easier Refinancing – Having equity in place can help secure better loan terms.
• Less Cash Needed – Some deals allow buyers to purchase with lower deposits.
• Better ROI – Higher equity means better leverage and returns on investment.