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Get your money out fast ...

buy to let Dec 29, 2016

THE QUESTION

How can I purchase a property, refurb and refinance to extract most of my money WITHIN 6 months please? I can buy cash if that helps to start with.

THE ANSWER

Almost every BTL lender uses a 6 month ownership restriction specifically designed to stop you from doing what you want to do, as they view it as increasing their security risk. They feel safe when they have your cash, or at least 25% of it, invested in the property.

There are a very limited number of BTL lenders that allow you to apply within 6 months of purchase, but their lending is based on the purchase price.

One or two may allow extra borrowing on the money you can prove you spent on the refurb, rarely on the new market value you have created. So, if you are lucky, you might get a mortgage of 75% of purchase price plus 75% of refurb costs. Hardly getting most of your money out.

If you can buy cash you should do, as you will have zero borrowing costs, until you refinance.  The other advantage of buying for cash is that you can leverage the speed at which you complete to negotiate harder to buy at a cheaper price. Thus, when you do refurb, you get a bigger uplift in value.

Commercial lenders do not operate that ownership restriction, meaning you are free to apply for a commercial mortgage as soon as the refurb is finished and it is tenanted.

Commercial lenders will lend on single let properties, as well as HMOs and commercial buildings.

However, commercial lenders rates are more expensive. Expect a rate of between 4% - 6.5% and a set-up fee of between 1.5% - 2.5%.  You will also need to prove you have landlord experience for at least the last 12 months with all but one lender.

Bear in mind that commercial lenders are also much slower at processing applications and you will be lucky to complete a commercial remortgage in less than three months.

A better solution

There is one other angle you can look at to recycle your cash at the speed you desire. I presume your intention of getting your cash out asap is so you can buy your next property,

Buy for cash, do your refurb and uplift the value.  If you find another cracker of a deal that you want to buy then using bridging finance against your first property to release enough cash to be a cash buyer again for your second property.  This gives you all the advantages of negotiating a lower price as you did with your first property.

When you refinance your first property (BTL, if you want to wait out the 6 months, or commercial mortgage) you repay the bridge.

Now your first property is mortgaged with the majority (perhaps all) of your cash out but your second property is now owned cash with no mortgage (yet).

Thus you can repeat that cycle by buying your third property for cash, using bridging against your second property.  You can repeat that process as many times as you like.

I have been teaching exactly this process for the last 5 years.

 

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