THE QUESTION

If I have unencumbered property, i.e. no mortgages, what creative finance schemes/packages are available for short or longer term for development projects? I really want to avoid BTL finance.

THE ANSWER

If you really want to avoid BTL finance and are fortunate enough to have an unencumbered property, you are in a very powerful position.

You can offer that property as additional security/extra collateral for any development project you want to get into.  That could mean that you need to put no actual hard cash into your project; save for survey and legal costs.

Both bridging and development finance lenders would typically lend you 70% (with slight variations) of the value of your property; as well as lending against the property you want to buy.  This is usually sufficient to borrow 100% of the purchase price plus the refurb/conversion/build costs if you need to.

For properties that fall into refurb/minor conversion category, that would generally be bridging....

THE QUESTION

I want to purchase a property for a potential serviced apartment; it also works at 8.5% yield as a Buy-to-Let.

I had a JV partner who was going to put in the deposit with the mortgage in my name.  My mortgage broker has informed me that no lender will accept a deposit unless it is from a family member.  I have not heard this before, is there any way round this?

THE ANSWER

This has been standard lender practice for some time.  BTL lenders prohibit you from borrowing the deposit, their criteria states that deposit must come from your own savings.  You cannot even borrow from family, it must be a gift and the gifting family member must not have any interest in the property.

They insist that you use only your own cash for deposits and they will drill down by requesting bank statements until they are satisfied it is your own money or decline to lend when they discover it is not.

There are several reasons for this stance.  Lenders consider it...

THE QUESTION

I know there are limited lenders if you buy a property, refurb it and then sell it within six months, but if I pay cash for a property and want to spend about £10k max on the refurb to turn it into 4-room lets for professionals before getting some money back out and renting the property out, is this feasible?

THE ANSWER

Buying for cash if you can is positive because you have:

1. Zero borrowing costs
2. The ability to complete very quickly (which will ensure you can negotiate the price down to the best you can get the property for).

Having four tenants on separate AST's will reduce your choice of BTL lenders as some only allow a single AST let.

The majority of BTL lenders will not accept a remortgage application until you have owned the property for six months, regardless of your method of purchase. There are a couple that will lend limit lending primarily to purchase price and provable refurb spend, thus trapping perhaps more money in the property than you intend.

...

THE QUESTION

Is bridging finance calculated on a deal-to-deal basis, rather than an individual’s mortgageability?  What would I have to demonstrate to be successful in getting a bridging loan?

THE ANSWER

Bridging has a completely different underwriting process to mortgages.  Mortgages are income-based lending for the medium to long term; whilst bridging is asset based lending for the short term.

The actual terms are determined on a deal-to-deal basis, as is the bridgers decision to lend or not to lend on a specific property, regardless of the fact that they are happy to lend to you as a person.

Invariably, bridgers will deduct the monthly interest at the drawdown of the loan (Retained Interest), so making monthly payments is rarely a consideration.

If you can demonstrate more than one exit route that will play well with bridgers.

Getting the term right is important as you want to be in a position to repay your bridging loan early, or at least on time. I assist all my...

THE QUESTION

A good friend of mine has just exchanged on two properties at auction yesterday. The properties are leasehold apartments with a long term lease on them for 15 years from 2007.

He’s looking for a good mortgage broker who could provide a mortgage on the two properties that can be turned around within the auction timescales of 28 days? He can pass any credit hurdles and has financial backing, but would like to finance the majority with a mortgage.

THE ANSWER

My brokerage can obtain bridging finance from one of our lenders to enable your friend to meet the 28 day deadline. You’ll find that traditional BTL mortgages can’t fulfil the 28 day term.

To complete this purchase within the required 28 days, he will have only two ways to realistically hit that timescale, cash or bridging finance. However, he may decide that completing on the sale will only compound the problem he has created for himself.

Assuming I have correctly understood that your friend has...

THE QUESTION

One of my landlords, whose property I manage for him, has voiced an idea that he wants to sell his 5-bed property – and suggested I might like to buy it.

It cash flows well and we have another 10 doors down.  The demand is strong so it’s a no brainer really; I just need to concentrate on financing.

My question is has anyone already gone through this scenario, and how did you do it?  My thinking especially now is to purchase it as a limited company.

THE ANSWER

To address how to finance this, let’s examine what will and won’t work.

Mainstream BTL lenders, will not lend on a property with 5 unrelated tenants each on a separate AST; most only lend on a single AST, a few will go up to 4 but 5 is outside of their criteria. They also don’t lend to limited companies.

This means that your only option is to use specialist or commercial lenders who, coincidentally, are happy to lend to limited companies.

Expect to borrow 75% with relative...

THE QUESTION

I have been sourcing properties now for nearly 12 months and now I am looking to buy my first property to flip or rent, but I would like to clarify the processes I need to go through.

I am looking to buy a 3-bed terrace and split it in to two 1-bed apartments.  Can I split the title through permitted development?  What costs are there in this?

I want to use a money in/money out strategy via bridging – what is your advice?

THE ANSWER

First things first, this is not a Permitted Development deal; to convert a house to flats requires Planning Permission.  Many landlords have just gone ahead and carried out a conversion without planning approval, unaware that they have just made their property unmortgageable; no lender will give a mortgage on an illegal conversion. (This is one of the goldmine categories of unmortgageable properties that I teach investors to make outrageous offers on at my workshops, as it is cash buyer territory only.)

So the first step...

THE QUESTION

What is the best way of purchasing an auction property and then refinancing it after the refurb work has been done?

The guide price is 200k, but this property has the potential to become eight self-contained units generating £400 pm cash flow each after a bit of work (£15-25k).  I have about 25k for deposit and a partner who would potentially put in the same, but was wondering the best way to go about doing this.

Could I use a commercial mortgage for the refinance?

THE ANSWER

I have financed plenty of these types of deal, this may help you:

1. Auction purchases are realistically funded with cash or bridging finance due to the restricted timeframe the auctioneer’s terms give you to complete the purchase, usually 28 days. Trying to complete with a mortgage, particularly a commercial mortgage, will end in only one way; you’ll lose your 10% deposit for failing to complete in time
2. For the refinance, commercial lenders lend to experienced landlords...

THE QUESTION

I've had an offer of £87,000 accepted on a property that, once it's had a light refurb, should be valued at £120,000.  Following the mortgage valuation the mortgage company have come back to me and said they are holding a full retention until the kitchen and bathroom have been replaced, but they really aren't that bad.  I've seen much worse and had mortgages for much worse in the past.  How can I get round this?

THE ANSWER

It looks like you have fallen foul of the differing definition of mortgageable that applies to main res or BTL properties. Lots of investors fall for that one too.

Because it has a kitchen and bathroom of sorts, you believe it to be habitable and thus mortgageable and you would be right if it was your main residence you were looking to mortgage.

However, for an investment property that will be let out a different level of habitability is required – it has to be rentable, not just habitable.  In other words, the...

THE QUESTION

I have found a high street property with great fundamentals and a very healthy rental yield.

It is in a very impressive listed (grade 2) building with 10 flats.   On the ground floor are two commercial properties - a Sainsbury’s local and a major bank.

The flat I am looking at is on the third floor of this building with windows facing onto the high street (double glazing in the bedroom).

Should I be concerned about being above commercial in this situation?  Obviously being right in the centre of town provides good fundamentals, but is there likely to be a problem being above these commercial businesses?

My strategy is long term - however I obviously am looking at potential sale in future and don't want to limit my market.

THE ANSWER

It is impossible not to limit your options on this property. A significant number of BTL lenders will decline to lend on flats above commercial.   This is simply because, as always, they have the end game in mind;...