Rent-to-Rent is a great way to get into property without having a big lump of cash to invest.  But it is time-consuming as you’re operating as the landlord, with all the responsibilities for maintenance, finding and monitoring tenants, etc. - you have to work hard to make a profit.

Given that most rent-to-rent properties belong to owners who simply can’t be bothered to look after them, they’re often open to selling if it’s worth their while.

If your rent-to-rent is coming to the end of your contract and you think the landlord may be interested if you make an offer, but you haven’t got a big enough deposit yet, does that mean you have to just carry on with rent-to-rent until you’ve built up your nest-egg?

Not necessarily!

Breaking the barriers

The first barrier is finding a lender willing to give you a mortgage to buy the property.

The second barrier is finding a way around the deposit challenge if you don’t have enough to put 25% down....

THE QUESTION

Could I get a normal BTL mortgage on a property and use it as a holiday let or is that super naughty?!!

THE ANSWER

If you read the T&Cs that pretty much all standard BTL lenders issue, you’ll find these conditions within them 

1. The minimum rental term permitted is 6 months

2. The maximum rental term permitted is 12 months

3. The only permitted rental contract is an Assured Shorthold Tenancy (AST)

Doing as you propose breaches 1 & 3.

The lender may not catch you doing this, but if/when they do, you have given them grounds to call in the mortgage.  You will receive a Cease & Desist letter ordering you to revert to AST renting or face repossession if you don’t.  This will be investigated to ensure you have complied.

As Clint Eastwood memorably said "so, do you feel lucky?"

You may conclude it is a safer bet to get a mortgage without the above conditions and there are a few lenders who specialise in this kind of mortgage....

THE QUESTION

With 10 years in the BTL business I’ve a number of properties bought jointly with my wife.  I now want to get into flipping properties (buying, renovating and selling for profit).  Here are my questions:

1. Is flipping still a good strategy in these times?
2. Is it beneficial to start this under a new company?
3. Most importantly where can I source such run down properties from? Any online source? Any specific agencies?
4. Do we normally get mortgages on such properties?
5. Any specific areas of the country that should be targeted?

THE ANSWER

That's a fair list of questions; let’s have a crack at them -

1. Flipping in a rising market is a much easier than in a falling market - it’s a bit like swimming up or down stream. Your challenge if you decide to flip is which will it be when you come to market your property for sale, rising of falling? Since the end of lockdown 1 in June 2020, the market in most areas has definitively been rising. The end of the...

Mortgage lenders love 'one eyed’ borrowers!

What do I mean by this term? One-eyed borrowers are those who focus on one aspect of a mortgage to the exclusion of the rest of the deal.  For most borrowers this single-focus is on the arrangement fee or the rate of interest.

As far as the lender is concerned fee focused borrowers don’t pay much attention to the interest rate they are being charged.  Lenders love this one eyed borrower because they know they can hook them with a product which drops the fee down low, or even make a zero fee product.  

The thing lenders love best is that it doesn’t even cost them anything to do this, they just jack up the interest rate to make exactly the same as they make on their low rate/high fee products - give with one hand, take with the other.

However, there are also one eyed rate borrowers who are so focused on getting a really low interest rate they don’t pay much attention to the arrangement fee they are...

Asking for the impossible … 

THE QUESTION

Obviously you find the good deals when you’re not looking and haven’t got the capital to hand.  Currently I have around £20k in cash, and I’ve found a property that requires refurb (£15k).  The purchase price is £195k, with a projected sale price of £270k. 

How can I finance this?  I am happy to look at bridging.  I’ve never done a flip before, always BTL, and I’m not averse to renting it out, but the yield doesn’t really fit my usual figures.  Am I asking for the impossible?

THE ANSWER

You more or less got it - asking for the impossible.  Your available cash equates to 10% of the purchase price, and then you need to also pay for, stamp duty, valuation fees, legal fees, and the refurb on top.

No lender will to lend you 90% of the purchase price, so bridging is a non-starter, - you need more cash, or you need to use equity in a property...

No lockdown for property!

The predictions for the property market weren’t good as we entered lockdown in March 2020.  

Savills, who are a nationwide, very well-respected estate agent, presented their opinion on the future of the property market due to the pandemic.  They predicted that the property market would suffer a severe dip by the end of December 2020, with property prices dropping between 5-15%.  They estimated that this would be followed by a two year climb back and things would be back to normal by 2025.

Why were their predictions wrong?  I believe various factors had an impact.

Brexit

Brexit was confirmed without all the hoped for agreements at the end of January 2021.  Most people in property, during the 4 year + period between the vote and eventually leaving, thought that there would be a property crash as soon as we left the EU.  

Many investors thought it was a good strategy to wait for prices to drop and then sweep up the good...

THE QUESTION

Homes of multiple occupancy (HMOs) have gained traction as an investment strategy over the years and investors often ask my advice about whether they’re a good way to go.

In reality, HMOs would not be my go-to strategy, especially for new investors.  To make them work now, you really need to understand the supply/demand ratio in the area where you intend to buy.  You need to ensure if there are more people looking for this kind of accommodation than there is available.

Know your tenants

Nobody dreams of sharing a house with a bunch of other unrelated people - they only do so because they either can’t afford their own place or have chosen to pay a lower rent in order to save up for something.  Sometimes people who are working away from their main residence area for an extended period may look for an HMO near where they’re working for weekdays.

As soon as the reason for them making that choice is resolved, they move out.  This may be when...

THE QUESTION

I'm looking for a little guidance on financing an auction property.

My brother and I have construction management experience and are looking at a house coming up for auction shortly.  We have roughly £50K to use as a deposit and to get any renovation works started.

We're considering a house with a guide price of £280K and would pay up to £300K for it.  We estimate that it would need £100k of work to bring it up to scratch, including a large extension, and would be worth well north of £500K once complete.

I have spoken to a broker I found online who have offered 65% LTV, which leaves us a fair bit short of being able to purchase and complete the project.

Are there other financing options that won't completely destroy the margin? I've considered Mezz, but rates of 20% aren't particularly attractive!

Second charge lending has also cropped up before so am interested to learn more about it. I do not have property in the UK, but my...