THE QUESTION

I’ve managed to secure a 3-year lease option on a large 3 bedroom, 2 reception room house.  It has an annexe attached to the rear, already set up as a studio, which I will SA straight away after mild refurbishing and decorating.

The question is, how do I finance the initial conversion of the house into an HMO with an investor if we are not going to execute the purchase option potentially for nearly 3 years?  It will stack up as all money out on commercial refinance once done to my plans,

I'm wondering do I treat it as a similar scenario to exchange with a delayed completion, do the work and go for the purchase/refinance ASAP with the benefit of not having to have paid a deposit or stamp duty until we actually purchase or do I do a small conversion and run it for a few years first?

Luckily, there is no mortgage on the property; it’s currently owned by a retired couple who are fairly well off.

Basically, how on earth do I present it to an investor...

Have you ever bought a great programme online, sounded brilliant and you eagerly accessed the first module, but life got in the way and you never finished it?

Whether it was an online learning programme, a course of coaching, an ebook (or manual) - with all the secrets and systems you needed to make it work, it’s easy to get ‘too busy’ to actually work through it.  Some people call it procrastination, some people call it laziness, your Mum probably says you never finish anything - but we’re all human.

Regardless of whether you start with the best intentions in mind, any trainer will tell you that if their delegates leave the training course and change ONE THING, they’re doing well.

Change means discomfort; you’ve heard people say it, ‘you’ve got to get out of your comfort zone’.  That’s true, but our subconscious is very, very good at finding reasons why not.  Not stupid or ridiculous reasons, but good...

THE QUESTION

We have an option to buy a commercial property for £200k, which is it’s current worth.  During the lease period, we plan to enhance the building to double it’s worth to £400k.

If we exercise the option and proceed to completion.  The vendor wants his £200k and that's what will be recorded on the Land Registry as the sale price, but we want to borrow against the £400k value.

Will any lenders look at lending against market value rather than purchase price if we can prove the value added during lease period?

THE ANSWER

There are two issues here:

1. When getting a mortgage to purchase, mortgage lenders invariably lend on the LOWER of the purchase price or value. They may recognise that you have added value, but there is very little, if any, chance that they will base the amount they are willing to lend on it.  Their offer will be based on the purchase price you actually paid.
2. More importantly, the lender may decline to lend...

Property investors need to use the F words frequently to get the results they want.  And I’m not talking at swearing at the tradespeople who are getting behind with the refurb!

When you’re an inspired investor you operate with a cash buyer mind-set - and if you’ve heard me speaking anywhere you’ll be familiar with my take on this.  It’s all about breaking out of traditional ‘mortgage-buyer’ thinking.  You need a strategy to set you and your money free from being trapped in mortgage deposits so you can’t use it to buy more properties.

That’s where the ‘F’ words come into play.  There are 5 of them and they stand for:

FIND

Track down a good deal - where the property is vacant and needs a refurb.  An ideal property needs to be structurally sound, but is probably pretty run down otherwise and needs the bathroom and kitchen stripping out and replacing and a serious paint job throughout.

FINESSE

...

THE QUESTION

If a landlord had a normal mortgage, with a Lease Option Agreement (LOA) to just rent the property rather than buying it, would they need to change their mortgage to a BTL/HMO/SA mortgage?

1) I assume they would. If they would, how have you found explaining this to the home owner?

2) What about those home owners who are on a really good rate from an old mortgage and changing would mean they don't get such a good deal?
Also with a LOA, say if the term is 5 years. Can you purchase anytime with the 5 years, so even after say 3 years?

THE ANSWER

The whole point of an LOA should be that is gives you the opportunity, but not the obligation, to purchase a property - and you can exercise that option at any point during the agreement.

But not all option agreements allow for that.

Actually there are LOAs and PLOAs. The P being the purchase part and, unless you have it written into the option contract that you have the right to purchase at a price agreed at the inception of the...

If you’ve spotted an empty commercial building and can see the potential to convert it to residential accommodation, the first step is to understand the situation in relation to planning permission.

Every property has a ‘use definition’ and all commercial property has this predesignated use.

A covers retail and professional offices
B is for offices and commercial premises
C encompasses various types of accommodation
D covers all kinds of organisations where the public attend, but nobody lives there -
like museums, all kinds of school, health centres, churches, etc. Also entertainment,
health and leisure premises.

Each of these categories has sub-divisions too.

This means that the type of business that can open up in the premises is limited to the use it’s been granted by council. So, to change use, you would need to get permission from your local council.

Permitted development

In 2013 the government - as an anti-austerity measure - instituted some relaxation in...

THE QUESTION

Is this possible:

• Buy 5 houses (50-60k price range) on BTL mortgages with 25% deposits, do small refurbs out of own cash with aim to rent them out within 3 months max.
• In 6 months’ time, refinance to pull some cash out of the deal (most will still have money in them)
• Use the rental profits + cash from the refinancing to buy more rental properties
• Repeat, building up a portfolio.

Question is, does this work?  Can I use BTL mortgages for this or do I have to use bridging finance? Can I refinance BTL mortgages in this price range?  Will there be limits to what I will be able to pull out of the re-mortgage bit.  (This is all assuming I take zero out of the company)

THE ANSWER

Your intention is sound, but your strategy to achieve it is a bit off beam.  I know something about this, because I have been teaching investors how to achieve exactly this outcome, and a lot more, since 2013.  Here is how to refine it to make it more achievable.

• Using...

If you’re thinking of buying at auction, bidding is the least of your worries.  Before you set foot in the auction room you must have done your homework.

Check out the auctioneer’s catalogue and don’t go in blind.  Check the properties you’re interested in.  Find out as much as you can about them:

• How long they’ve been on the market
• If they’ve been offered in the mainstream market what was the last asking price
• If there are any serious problems that will need fixing to make the property habitable – and importantly, mortgageable

Then you need to get your calculator out and work out the maximum price you can realistically pay for this property, to ensure you have profit built in after any work that needs doing. 

You’ll also need to calculate how long any refurb is likely to take and KNOW (not guess) how much it will cost to do it and how long will that take.  If you’re experienced in refurbs and...

THE QUESTION

If you secure a lease option and want to turn the property into serviced accommodation (SA), does this mean the property owner would need to remortgage to get a mortgage that allows short-term lets, or would consent from the lender be enough?

THE ANSWER

No landlord you approach will have a mortgage that will permit SA usage.  It is a highly specialised form of mortgage and which would only be in place if they already operate as SA.  In addition, no standard mortgage lender will consent to SA usage, so you can assume that a new mortgage will be required.

Most lease option deals fall over at this point, as the landlord can’t be bothered with the hassle of that just so you can use their property.  If they remain interested at the point it will quickly wane once they realise both the set up costs and the higher ongoing interest rate they are going to have to pay for years to come - all so they can let you use their property for SA.

Pursuing this...

If you’re a landlord you need tenants - not least because you’ve got a mortgage to pay or a bridging loan to pay back.  When you purchase a property do you have an idea of who will want to rent it?

If you’re doing a refurb your potential tenants may influence your choice of décor and layout.  For instance:

Student accommodation needs to be robust and easy to clean, so no fancy wallpaper and plenty of workspace will be needed in the kitchen to accommodate more than one meal being prepared at a time.  An efficient and cost-effective hot-water system is important for high demands for showers, laundry and kitchen use.

A family home can offer more up-market fixtures and fittings to make it attractive to potential occupants.  Generally, it’s wise to decorate in neutral colours to avoid alienating a possible tenant who doesn’t like a particular strong colour.

Finding your tenant

This depends on how much effort you want to put in.

• If...