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Avoiding the ‘six month rule’

q&as Oct 10, 2017

THE QUESTION

If I buy a property for cash through a Limited Company, does the 6 month rule regarding remortgaging apply?

THE ANSWER

Some lenders choose to apply a 6 month restriction, whilst others don’t.  Actually, it isn’t really a rule, just a restriction, but it has commonly become known as ‘the six month rule’.

For those lenders that apply it, the point to get clarity on is that it is a length of ownership restriction, not a method of purchase restriction.  This means that, if a lender requires you to own the property for 6 months, the restriction will apply regardless of the entity whether you bought it as an individual or a company and regardless of the method you used to buy it, cash, bridging or any other method.

If you want to buy cash and refinance within six months, simply pick a lender that does not invoke the restriction.  Any decent broker will be able to source those lenders for you.

It is also worth highlighting the other issue...

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Retirement properties – a good deal?

q&as Sep 30, 2017

THE QUESTION

Do you have experience with renting Retirement properties?  Is it a good idea to buy a flat at the seaside and rent it as a retirement property?

THE ANSWER

There are two issues here:

  1. Renting properties that are part of a retirement complex.
  2. Buying a flat and renting it to a retired person – or people.

Number one is a great idea if you have cash to burn! No mortgage lender will touch these with a bargepole.

Retirement properties have covenants that restrict who can buy them, who can live in them and whether they can be rented.

All retirement properties will be restricted to people who are over 55 years old.  Some will only be able to be bought by buyers over that age and many will only be permitted to be occupied by the owner and renting out is prohibited.

If you want to park your cash in a flat that can never be mortgaged, can only ever be sold to someone over 55 and has age restrictions on who can live in it, great.  The reality is there are...

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Getting the most for your money

q&as Sep 20, 2017

THE QUESTION

Does bridging lend enough to cover the purchase price and the refurb cost?  If not, how can you get the maximum amount of funding?

THE ANSWER

Most bridgers lend 70% of the purchase price, but a handful lend 70% of value. This is great if you are buying below market value (BMV) as you can use the discount towards your deposit, but to buy with no money down (NMD) you would need a discount of 30% plus.

You would still need to pay for the refurb, although some bridgers will lend you money to cover that too, but in staged payments and in arrears.  This means you would still need some cash to get the project started.  It may be possible for you to borrow the reduced amount of cash you need privately and bridge the rest.

For example:  I brokered a deal last year where the asking price was £350k.  A £250k offer was accepted, which meant the bridger lent 95% of purchase price.

The refurb cost was £50k, the borrower spent £25k of...

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The risks of buying a non-standard construction property

q&as Sep 10, 2017

THE QUESTION

I’ve just been offered an HMO in need of some work.  There's about £20k in the deal, and it could be flipped or end up as NMLI (no money left in), but it's a Wimpey no-fines house, i.e. poured concrete construction.  I have heard that Birmingham Midshires lend on these, but considering an exit strategy (immediate or in future) is it wise to go down this route?

If a flip, will buyers be put off by the fact there's only one potential lender.  If buy to hold, is it possible that the one available  lender could re-assess their exposure and pull that product, making it a cash only deal – and wiping the profit out of the deal?

THE ANSWER

I see this regularly – non-standard construction properties where the reduction in price comparable to similar standard construction properties attracts investors like moths to a flame.

These are mostly properties built for councils, post-WW2, by the prominent builders of the day.  Concrete...

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Buying a B&B

q&as Aug 30, 2017

THE QUESTION

I’m looking for finance to buy a small B&B, what do you recommend?

THE ANSWER

Small B&Bs tend to be problematic to finance.  This is usually because the owners have a narrow view (encouraged by their accountant) of the property’s value based on keeping the taxable profits of the business down to a minimal level.

Of course they benefit by pocketing almost all of the turnover for a number of years, but it bites them in the bum when they come to sell it!

First thing any lender we/you approach wants to see the latest three year’s accounts and, of course, they are rubbish showing the business hardly makes a profit (on paper).  Thus you either get declined for a mortgage completely or get offered a ridiculously low loan-to-value.  As a result purchasing this type of business tends to require all or mostly all cash because banks won’t lend on them.

It is possible that you have found one of the minority of savvy B&B owners that...

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Dealing with lease extensions

q&as Aug 20, 2017

THE QUESTION

I have seen a property that has 60 years remaining on the lease with great potential to develop and sell, but the price is at market value and the length of the lease makes it a risky proposition.  If we could get a lease extension prior to purchase that would work, but agent claims it will cost £107,000.00 on a property valued at 600,000.00.  I need expert advice on the best way to tackle this.

THE ANSWER

First of all, get realistic about the value of the property pre and post lease extension.  Get clarity around the costs of buying, refurbing, extending the lease and selling; factor in the profit you need to make.  This will give you the realistic price you need to buy at or below.

Negotiate the purchase price you pay based on the fact that this is cash buyer only territory.  This means that those who have the ability to buy it will want a healthy discount to reflect the scarcity of people with the ability to complete the purchase.

  • Get...
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How to get into serviced accommodation

q&as Aug 10, 2017

THE QUESTION

Serviced Accommodation (SA) seems to be the new HMO in terms of the property strategy everyone is talking about doing.

I can see the attraction for an investor. Like HMOs, SAs offer a superior monthly cash flow, but do I need any special mortgage for a property I am going to let out by the night or can I use a normal BTL mortgage?

THE ANSWER

You cannot run a Serviced Accommodation business with any normal type of mortgage; not legitimately anyway. If you look at any mortgage lender’s T&Cs, they state the minimum and maximum length of a tenancy agreement they will permit. For pretty much every lender, that will be a minimum of six months and a maximum of 12 months. Clearly letting for a few nights breaches these conditions.

When you commit a breach and the lender becomes aware of it they can call in the loan. Some lenders may not, but others certainly will.

I suspect that plenty of SA businesses are being run without the mortgage lenders knowledge.  This...

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Leveraging your investment by going Limited

q&as Jul 31, 2017

THE QUESTION

Can you buy a property for cash, using other people’s funds loaned to your Limited Company, carry out a refurbishment and then remortgage on to a BTL, hopefully releasing some equity to pay back the investors their initial stake in addition to their margin of interest?

Following the remortgage the property will be solely owned by your own Limited Company and the initial investors will have no vested interest.

Will the mortgage company insist that all of the funds are from a personal source, i.e. not outside investors/JV partners?

I'm exploring ways to accelerate portfolio building and seem to keep hitting stumbling blocks.  The buy-refurbish-refinance model seems to be getting quite hard to implement, so I was looking at ways of buying un-mortgageable properties with cash and then financing them to current value thus avoiding ERCs and other fees. I'm not currently investing, but really hoping to start this year.

I have quite a lot of business experience,...

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How to get funding for full value when buying BMV

q&as Jul 20, 2017

THE QUESTION

Here’s a scenario:

  • Purchase at 150K
  • Exchange and then carry out works expected to bring valuation to 185K
  • Keeping a strong and detailed record of all the building works, when the valuer comes and tells you (hopefully) it’s worth the full 185K

How does the lender feel when they know you only paid 150K?

Also how does the vendor get their 150K, is that just a paper exercise through solicitors?

Do you need to have a lender ready to go and do they want to know about the works you are carrying out prior to agreeing the loan?

THE ANSWER

It is possible to achieve your objective of needing little or no deposit, but you have to be very specific in how you set it up.  I have arranged the finance for exactly this with a number of clients.  I have also taught this exact strategy on my workshops for the past four years.

Doing the exchange with delayed completion is relatively simple, the vendor has to buy into the concept and give you both the keys and...

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The Chicken or the Egg?

q&as Jul 14, 2017

THE QUESTION

I’ve been advised to go out and find deals and the finance will follow. I have found a few suitable projects, done the sums and offered to purchase.  We lost a deal earlier in the year as we failed to finance it and we currently have two deals on the table that are good few weeks down the line and the vendors are starting to get itchy feet (quite understandably).

This has really started to stress me out. The reason for the immense stress was that I was putting my credibility on the line. I was making promises to do something that i had no way of fulfilling.

Now it’s certainly motivating, it makes you take action, but raising finance is not a quick process.  It takes time to build relationships and trust - it’s not something you can fix with 'hustle'.

So, how do people deal with this?  Do I need to change tack and concentrate on getting financial backers on board first and then start looking for deals?

THE ANSWER

This is the perennial...

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