THE QUESTION

I’ve been looking at developments, if I was to cash build let’s say a row of terraced houses, once built can I refinance at whatever LTV available, take the cash, and rent the properties out under the company? 

I’m just looking at other avenues rather than the normal build and flip scenario. I’d like to know if there are any implications if I wanted to build properties with the sole purpose of refinancing and renting out.

THE ANSWER

Build to rent is an established concept, so getting finance to pull your cash out should be fairly straightforward.

You should be building to a minimum profit margin of 20% of GDV, but preferably more. You can finance at 75% of GDV - subject to the rental income being sufficient to borrow that loan to value. 

One element that should add to your bottom line profit with build-to-rent is the standard of internal finish. If you are building to sell that quality has to be good enough to convince would-be buyers...

If you’ve been building your property portfolio and have an eye on doing a new build project, you need to know the ropes to ensure you finance it properly and make a good profit.

These are my top tips:

Development finance is different

It’s different to most other property finance options and you need to understand how it works.  This kind of finance is no longer available from the banks, who pulled out of it during the 2008 credit crunch.  Most development finance lenders are small specialist lenders who usually only offer this kind of finance.

There are barriers to entry to deter people who are dabbling and ensure only serious investors qualify.

You’ll need experience

This is that Catch-22 situation.  You need experience, but you can’t get experience without the funding to support you.  The lender will expect you to have relevant experience – in other words the same level of development.  For a single or double unit project,...

THE QUESTION

Are there any issues with lenders granting standard BTL mortgages on properties bought via sourcing agents? It’s been rumoured that some lenders would not lend in this situation or, at least, not at their most attractive rates. Is this true?

THE ANSWER

A bit of a history lesson will help you to understand mortgage lenders aversion to sourcers and, yes, a lot of lenders do have one.

Remember this about mortgage lenders - they trust the normal and distrust the abnormal. What is normal about the sale of a property is that it is marketed through an estate agent. Anything that is not, immediately puts the lender on their guard.

Much like an elephant, lenders have very long memories and they certainly haven’t forgotten getting royally stung in the pre-credit crunch era.

This was a time when 'property clubs' abounded, often linked to a training company, the most dubious of which was Inside Track. These guys offered an armchair investor option that sourced...

People get into property for a number of reasons.  They may be looking to build a nest egg for their retirement, they may have a passion for property, they may just hate their day job and are looking for a way out.

If you have main employment and your property career is a part-time - evenings and weekends - activity, it can be tempting to see how quickly you can build your property portfolio to generate enough to live on.  However, before you get excited about being a full-time property investor, take a step back and consider the additional challenges you’ll face.

Being able to throw off the shackles of an unrewarding and unfulfilling job may be right up at the top of your life goals list, and rightly there is a huge sense of achievement in bringing about such, but what if that means your portfolio expanding ambitions may have just ground to a halt?  Having no other means of income can have an adverse effect on your ability to raise mortgages. Why? The last...

THE QUESTION

When you’re buying investment property for BRRR is it worth buying for cash, do it up and remortgage and pull as much money as possible, rather than using bridging and incurring interest on the loan?

Realistically am I in much better position buying for cash and offering speedy transaction to the seller? Can I expect to save money buying cash in today’s market?

THE ANSWER

Nobody should consider using bridging loans when you have the cash sitting in your bank earning diddly squat interest. When you factor in all the fees and interest, bridging will cost you approx. 10% of the purchase price over a 6 month period. So, saving that cost is going to increase your bottom line profit on a deal.

Buying for cash should enable you to make lower offers but that will only really work a) with sellers who are in hurry to sell and b) for properties that are in greater distress than those needing no more than a quick refurb.

Sellers in no hurry to sell will just reject low...

Even though it’s a seller’s market there are properties that are available to buy - and sometimes they seem too good to be true.

A typical property is one that looks good from every angle but happens to be situated next to a commercial premises.

The first thing that is on the lender’s mind when reviewing a request for lending is ‘how can we get our money back if the buyer defaults?’  So they’re looking for problems and one of the problems that may raise its head is where the property is located.

If you’re not planning to live in the property yourself, but plan to let it out, you may think that being next door to a pub or a takeaway is a plus, but mortgage lenders don’t see it that way.  What they see are:

• Noisy, probably inebriated, people late at night.
• Lots of car doors slamming at late hours
• Lots of people passing your front door

Lender’s perception of the demand to live with all that going on will be diminished...

THE QUESTION

I am looking for advice on bridging finance (flip, not rent). 

I have cash for one property already, but the gaps between complete, sell and buy next house are proving too long. 

Does it make more sense to do bridging finance for smaller amounts/with cash deposit to allow work continuously (e.g., £150k properties straight after the other) or to mortgage against fully owned property while working on it to allow fewer, but larger, projects?

THE ANSWER

Having brokered hundreds of bridging loans stretching back over a decade and teaching many hundreds of investors how to intelligently and profitably use bridging finance I have plenty of insight on bridging as a finance vehicle.

Having the cash to buy one property gives you a really great start - zero borrowing costs on the first project.  Don’t deviate from that.

You have recognised the limitation that slows you down to a crawl - you have to kick your heels until you can sell the current property...

If you haven’t bought at auction before it’s easy to be misled by the contents of an auction catalogue.  The challenge is that anyone who watches daytime TV and has seen programmes like Homes under the Hammer can be led to believe that every property auction in the country has lots of fantastic deals just waiting to be snapped up.  This isn’t actually the case.

You may see a property listed in the auction catalogue at 20-30% below market value (or even lower in some cases) and a closer look shows it to be in good nick, with no need to refurb.  That looks like a great deal - buy at 20% BMV and refinance at market value or sell on and get an instant profit.  Sounds too good to be true - because it is!

Before you jump into your first auction you need to understand the hidden cost of buying properties at auction.

1. The guide price - this is the price in auction catalogue and this is the price used as a marketing tool to increase interest.  There...

THE QUESTION

I have a semi-detached house with a garage and wanted to extend the existing garage into a granny annexe.  

In the future I would like to split the deeds and keep the granny annexe to live in myself and sell the house to pay my current mortgage and have an income.

I currently have an interest only mortgage which ends in about 10 years, and my mortgage company said to put a request in to them and they would converse with land registry, if they agreed I could go ahead’

Is this a feasible project?

THE ANSWER

Here is the biggest barrier you face - the mortgage lender’s T&Cs.

if by 'granny annexe' you mean a self-contained fully functional living space with its own entrance, it’s not the regulations that prevent you, it is the mortgage lenders T&Cs - what they will and won’t allow you to do while they have a charge over your property for the money they lent to you.

Splitting the title is only part of he challenge.  First you need to...

If you’re following the Buy - Refurb - Resell or Refinance strategy you are likely to come up against the so-called ‘6-month rule’.  There is some confusion about what exactly this ‘rule is.

In truth there’s no such rule - it’s simply a practice that some lenders have adopted.  The problem it creates is that those lenders will require you to have owned a property for six months before they will consider a remortgage - or, if you’re selling it, will be willing to offer a mortgage to your buyer. 

If you’re doing a refurb with a view to refinancing onto a BTL mortgage then the simple solution is to get bridging finance for the first six months to cover the period of refurb and then refinance.  However, it gets tougher when you’re planning to sell the property quickly.

Does this mean that you can’t sell it?

Not at all.

If you’re selling to investors or landlords, it’s less of a problem as they...