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...

Property prices at auctions are going crazy!  The bidding is pushing prices way above their market value - not just by a couple of thousand, but by tens of thousands.

Here are a couple of examples I’ve recently come across.

A property was put up for auction that was located in a street where the best price for any of the other properties had been £230K.  The property being auctioned wasn’t in good condition and it was estimated that it would need about £45-50K to bring it up to its full value.  The winning bid was £220K - before stamp duty, legal costs and auctioneer’s fees.

Crazy! – that buyer is going to be nursing a serious loss when they get around to doing the necessary modernisation. 

Another property in a street of small 2-bed terraced properties was up for auction and the best price any of the similar properties had made in the recent past was £120K.  It definitely needed a facelift, which would...

THE QUESTION

If an asset holding company that owns a portfolio of BTL properties wants to mortgage one (unencumbered) in order to loan those funds to another company (a child of that company) for the purpose of buying a commercial building in cash (i.e. office and warehouse) is this feasible or would lenders take issue with it?  Technically it's a vacant commercial unit.

This needs doing quickly as the deal is live right now.

THE ANSWER

It would be wise the check out with your accountant on the tax implications of your idea.  From a lending point of view, lenders have no issue with you raising money for a deposit from the equity of other properties you own, this is done frequently without problem. 

Where you will hit a problem is that you want this done quickly/immediately, it won’t be. It will take longer than that for the reason that mortgage lenders for the BTL mortgage are slower at processing mortgages than before Covid, for a variety of reasons but it...

When a deal falls through and someone else ‘buys’ the property, what do you do?

Properties are selling fast, the market is buoyant and the competition between buyers is hot.  It’s not just investor v. investor, you’re up against anyone who is looking for their next home too.  So, you’ve made an offer and the answer is ‘Sorry, someone else has made a better offer and it’s been accepted.’  Now what?

Most people write that one off and go on to their next deal.  But what if you haven’t actually missed out on the deal?

Did you know that one in every three deals fall through?

The sale is not complete until contracts are exchanged and that can take weeks - usually months.  As the saying goes ‘There’s many a slip between cup and lip’ and in property that is very true.

People don’t complete the deal for lots of reasons - they may have a change in personal circumstances, find another...

THE QUESTION

I've seen a house with knotweed which is 8 metres from the house and is level 3. Do mortgage providers lend on properties with knotweed?  If not, could I get a bridging loan, excavate the knotweed and refurb the house then refinance?

THE ANSWER

Several issues here, so let’s deal with them 

1. Mortgageability - Japanese Knotweed is one of the biggest no-nos for mortgage lenders, because of its potential ability to undermine the foundations of a property.  Its current 8 metres proximity to the property won’t be 8 metres for long, given its propensity to spread.  It’s highly unlikely that you would be granted a mortgage, especially at the time of year when it is in full growth mode, April to August, which can be up to 20 cm per day in some cases.
2. Eradication of Japanese Knotweed is controlled and only possible through licensed contractors.  Excavation or chemical treatment are the options.  With excavation a depth of 3 metres...

Property investment can be very much a solo career, but a smart investor has a strong network surrounding them.  It makes everything easier and projects go more smoothly.  These are my recommendations for who you should have in your little black book.

• A solicitor who is familiar with property - and, if you’re serious about building your portfolio, understands how bridging finance transactions are carried out and is sufficiently flexible and efficient to carry out the legal requirements swiftly.
• A good independent broker who can access the whole market and has experience of mortgages, bridging and development finance and will give you good advice.
• A reliable builder, carpenter, painter & decorator, electrician, plumber, and maybe a gardener, who will help with refurbs.

It’s wise to build good relationships with your local estate agents too.  If they know you’re a repeat purchaser and you can process purchases efficiently they’ll start to...

THE QUESTION

How would you structure this to use as little of your own money as possible?

Property: 1 shop downstairs and 1 residential 2-bed flat upstairs

Single freehold title

Buying price £65k

• The shop is leased for £4200/yr.
• The flat is currently vacant (could bring in £4500/yr).
• Some value can be added by extending the lease on the shop, and placing a tenant upstairs.
• Minimal refurb required. Both up and down currently share an entrance.
• Vendor finance may be an option for a few months.

How would you structure the offer to the vendor?

How would you add value?

What is the best way to finance it?

At what point would you put it on a mortgage?

THE ANSWER

The shared entrance could be problematic if the shop owner and the flat tenant are unconnected 

1. How would the tenant get access to the flat out of shop opening hours 
2. How would the shop owner guarantee the security of their stock, if the flat tenant had the keys to the shop?

Your ability to get a...

The answer to that is that it depends on who is actually selling.  If you’re purchasing from someone who has finance problems and may be in arrears with their mortgage, it’s definitely not a good idea – mortgage lenders prefer not to lend when you are buying from owners experiencing financial hardship.  However, if you’re looking at properties that the lender has repossessed and are now for sale - with vacant possession - they could be a profitable purchase.

The reasons for repossessions are many, but they all come down to the current home owner being unable to maintain their finance.  This might be because they’ve lost their income, a divorce whether neither party is able to maintain the property alone or a family fallout where joint heirs exist.

Realistically, the lender just wants their money back - with no regard as to whether the current owner gets anything out of the deal or not.  That’s why repossessed properties often...

THE QUESTION

What are the best sources to buy BMV?  I want to take my portfolio to the next level and maximise on returns.

THE ANSWER

This is a sensible way to leverage your profits and there are a few simple rules here.

1.  Only spend time with sellers that NEED to sell.  Everyone on Rightmove wants to sell their property, otherwise why list it.  But probably 90% + are happy to let it sit there until they achieve something close to the asking price. 

What you need to find are those few sellers with a more urgent need to sell, they can’t wait 6, 9 or 12 months to get a good price.  They need to sell quicker and quicker means cheaper - in other words they’re motivated sellers.

These people may have to move for work, to look after elderly parents, finalise a divorce or want to complete probate.  They don’t have time to sit around waiting for someone to buy - and then wait for a chain to resolve.

2.  Only look at properties in...

Nobody likes to admit they’ve fallen short and as long as nobody know what you’re aiming to achieve, you never have to stand up and be counted.  But with no fire under you, will you achieve all you hope to?

This isn’t just a property thing - it’s pretty universal - but people who are wannabe investors are many.  They know it’s possible, because other people are successfully investing in many different ways, but they’re not taking action.

What holds them back?

The number one stumbling block is fear.  This is usually fear of failure - and failure when you’re dealing in assets worth hundreds of thousands can be life-changing.  However, sometimes it’s fear of success.  It sounds crazy, but some people worry about what changes they’ll have to make if they are hugely successful.

Procrastination also happens because everyone is different.  Individuals look at other investors and can always find a reason why...