Converting a commercial property into a residential property is a smart move – there is an overabundance of commercial properties, many that have been standing vacant for months or years. Equally there is a shortage of housing (and lots of media coverage about the pros and cons of new build projects) – it really is a no brainer.
Commercial properties include pubs, care homes, shops, offices, schools and many more.
However, many investors don’t realise that a commercial property without a tenant in situ is not mortgageable. Commercial lenders’ main concern when considering whether to grant a mortgage is ‘will the borrower be able to pay the loan back?’. As far as they’re concerned, no tenant equals no income. No income equals no ability to service the loan, so they won’t lend.
Many vacant commercial properties remain for sale for a considerable time. This is simply because would-be buyers lack...
If you’ve been growing your property portfolio and have a few conversions and refurbs under your belt, you might like the idea of becoming a developer and building a multi-home project yourself.
You may have been watching Grand Designs, the Big Build and other similar TV programmes and feel ready to tackle a bigger project with homes to either rent out or sell. However, it’s not as simple as a straightforward conversion.
Firstly, you’ll need specialist development finance - not a self-build mortgage or even a bridging loan.
Almost without exception development finance lenders want provable, documented, comparable experience that the borrower has successfully completed a project similar to the one they’re now seeking to fund.
These lenders have a policy of putting up barriers to entry and this lets them cherry-pick the projects that they see having a high chance of success. Development finance is not given for ‘on the job’...
I've sourced a 20% BMV deal and am wondering if it’s possible to get an interest only mortgage for the purchase taking into account 80% loan-to-value, so I can purchase with a smaller deposit?
You are on a loser if you want to get a mortgage lender to lend against value and ignore the purchase price - at the point of purchase they never do. It is always the LOWER of purchase price or value.
However, some, but not all, bridgers will lend against the value and sometimes up to 75%, but it is often not quite as simple as that.
One key factor is whether the property is or has been marketed by an agent or not. Using the example of you think the true current value is £100k but you have negotiated to buy it for £80k. If it has not been marketed a bridgers valuer may (but there’s no guarantee) value it at £100k.
However, if it has been marketed and say the asking price was £85k, then valuers would override your idea its worth...
There is one thing that can seriously dent the profit in any project and that’s overpaying for the property. An essential part of your due diligence is to work out the maximum you can afford to offer on any property, while still giving you the profit margin you need.
It’s easier to work backwards when doing this.
Start with the end value that your property will be worth once you’ve completed any work that you propose to do to it. You should be able to find comparable values of similar properties that have sold within the last few months.
The majority of properties that investors buy are flats, terraced and semi-detached houses. They don’t tend to buy large detached properties in five acres of ground, this means that comparable values are much easier to obtain for these types of property.
If you are buying a commercial property this may not be so easy and you may need to engage a commercial surveyor to get a true current and future value.
Most investors think that the only way to finance deals, when their bank account hasn’t got enough in it, is to joint venture (JV). To maximise your return on investment there is a JV Pro-Fit Retainer strategy.
Stop giving away 50% of your deal’s profits when you joint venture and, if you do decide to set up a joint venture stay on the right side of the FCA.
The key thing to remember is that the Financial Conduct Authority (FCA) states that you must only joint venture with someone who is categorised as a sophisticated investor. That means you need to know about PS13/3 and what constitutes a sophisticated investor and there are seven main criteria for these.
If I buy a property with five flats and then split the titles and try to get 5 BTLs mortgages for the flats: would there be an issue with mortgage providers not being willing to provide mortgages in the same building?
Simple answer - yes. This issue confuses a lot of investors.
Even at property meets people run in the opposite direction if anyone suggests that bridging finance might be the solution to their financial challenges.
Other well-meaning investors will advise you not to touch it because it’s too expensive. They’ll warn you that you’ll lose your shirt - or try to frighten you off with other prophecies of doom.
So here’s a question for you:
If you’re an investor that’s never used bridging it probably does.
We all have a scary box and what is in mine are professional people, i.e. solicitors and mortgage advisors who advise people not to use bridging finance. I find it amazing that people who should be knowledgeable about property don’t understand that, in the right circumstances, bridging finance should be your first choice, not your last choice.
What is it about bridging finance that’s so scary?
When you’re negotiating with the seller of a property you are interested in, don’t forget to prepare properly. That means being ready with your persuasion strategies. One of these is the Calculator Close. This is how it works.
Start with the asking price – get them to enter this in the calculator. Then break down all the costs involved in getting it to the ceiling price, one by one, including:
Don’t allow them to use ‘bargain basement’...
I’m seriously considering converting my HMO into serviced accommodation (SA). How easy would it be to refinance it as SA?
Buy-to-let (BTL) lenders invariably require a minimum letting term of six months and a maximum of 12 months in the terms and conditions. That makes short-term lets a no-go area for the mainstream lenders.
Commercial lenders see serviced accommodation as in the same category as B&Bs and guest houses as it uses the same business model. These lenders fall into two group:
Due to the lack of a certain income lenders are nervous about the security of their loan and want some assurance that the income from the property will cover the mortgage payments comfortably.
If you remortgage an HMO lending is straightforward as you have the...
Unmortgageable properties represent a gold mine of opportunities! But before you jump in you need to understand why they are unmortgageable and which ones have profit hidden in them – and the deals to avoid.
Unmortgageable properties are valuable because:
The vast majority of property investors are mortgage-dependent and when a property can’t be mortgaged they walk away. This leaves the field clear for the few investors that have the knowledge of how to buy this type of property.
Better still, not only do mortgage-dependent investors walk away from unmortgageable properties, they often don’t even spot them; they’re not on their radar.
The owners of an unmortgageable property are usually aware that it’s unmortgageable. Often this is because they’ve lost...