THE QUESTION

I am looking for some inspiration on a potential property.  It is a lovely property that is presently mixed use as a business and flats.

It can be converted to five flats that will fetch a premium price due to the location. The person selling is prepared to listen to options and is prepared to let us develop out the property while she still owns it, therefore, minimal cost to us at purchase.

 I have a few ideas myself but am looking for a bit of inspired creativity.

THE ANSWER

One creative solution was suggested by one of my students who recognised that this opportunity fits one of the strategies I teach on my Ninja Investor Programme workshops.

Through our brokerage, we have financed a number of projects funded exactly this way. So this is not just theory, it works and works well when the number are right.

If you have the current owner’s agreement and permission to enter the property and do the required works to do the conversion, then the delayed...

Most property investors are looking for existing buildings to convert, refurb and either turn into rental income or sell at a nice profit.  However, if you’re looking for a new challenge, it’s tempting to consider building from scratch.

Before you get excited at the idea of building homes to either rent or sell, you need to know about finance.  This isn’t mortgage territory – and it really isn’t bridging finance territory either.  The funding for new build projects is called ‘development finance’.

Self-build mortgages do exist for a main residence, but if the lender suspects that you’re borrowing a self-build mortgage and planning to develop and sell on, they can pull the funding at any point, regardless of what point the project has reached.

Development finance lenders have a policy of putting up barriers to entry and this lets them choose the projects that they consider have a high chance of success. 

Development...

THE QUESTION

I’m looking to buy my first house and I have £40K in cash ready to go.  Do I:

1. Buy it outright. Do the full refurbishment (I’m looking at 12 weeks).  It will be worth £80k once complete and rent for £500pcm. so get a mortgage at £75K  LTV, once it’s ready to let.
2. Apply for a mortgage at £75 LTV and wait at least six months to get my equity out.

Or is there a better way?

THE ANSWER

The argument for buying with cash

1. You can buy much faster than getting bogged down in a mortgage application process
2. If you can buy faster, you should be able to negotiate to buy cheaper - to a degree
3. During the refurb period you have no monthly payments to make and incur no interest
4. Once refurbed, value uplifted and tenanted you can apply for a mortgage. Wait six months if you want access to preferential interest rates; don’t wait if you don’t

At any point in between if you manage to find your next deal and...

THE QUESTION

Can you 100% fund with bridging an optioned project using planning gain as equity?

The project is a conversion of offices to residential, with planning for Change of Use.

The projected uplift in value is 35% upon consent. total circa £1m.

Although I have no actual direct experience, I do have a few very large client successes and similar smaller scale projects in my portfolio.

THE ANSWER

In terms of loan to purchase price, bridgers divide into broadly 3 camps

1. Those that lend on the lower of the purchase price or value, exactly the same as mortgage lenders do
2. Those that will recognise a value uplift, but put in a maximum loan to purchase percentage override i.e. the lower of 70% of value and 85/90% of purchase price. This would mean whatever value uplift you created they would still require a minimum of at least 10% of purchase price input from you
3. Those that genuinely ignore the purchase price and lend on value

Of those, No. 3 is the rarest, but they do exist...

Some people will warn you that buying a property that you can’t get a mortgage on is madness.  If you listen to them you could be missing out on some great opportunities that may be unmortgageable – but are still very profitable!

Traditional lenders have a long list of types of property they won’t touch.  These include:

• Derelict properties or properties that are in severe disrepair
• Properties without a kitchen and bathroom
• Properties that have more than one kitchen
• Properties with structural defects, damp, mould, wet or dry rot, wall tie problems
• Properties with Japanese Knotweed
• Non-standard construction properties – like the Wimpey No-Fines homes built after WWII.
• Properties where there’s a boundary dispute
• A house to flats conversion that has been done without proper planning permission (or planning permission has been applied for after the fact)
• Properties under £50K in value
• Properties with fewer than 70 years remaining on the...

Cash buyers get better deals.  They can negotiate substantial discounts on the asking price for properties, sometimes even as much as 50% below market value if there’s a really motivated seller.

The need to get a mortgage slows things down and can take months, so the ability to get the deal done in under a month can be very attractive to a seller who wants to get money out and move on.

I’ve explained how bridging works in many of my blogs, but to really see how it operates here’s a fairly typical case study.

The investor:  An experienced investor, but not with bridging finance.  He had about £38K in actual cash available.

The property for sale:  A former care home, originally a terrace of six houses, that had closed due to the owners being unable to afford to meet the Care Quality Commission standards.  It had been on the market for some time – with no interest.

The asking price:  £350,000

The plan:  To apply for...

THE QUESTION

A prominent member of the community has said that you can buy a property below market value (BMV) e.g. 25% BMV £150k, MV £200k) using a BTL mortgage and then remortgage six months later at MV £200k – realising the 25% difference £37.5k.

You can then use that £37.5k as a deposit for the next deal etc.

Is it actually possible to remortgage after six months at the true MV and not the actual purchase price?

THE ANSWER

The question here is not ‘can you …’, but what you are risking if you do.

With their current lending criteria, no mortgage lender is going to give you a mortgage if you are transparent about your intent to redeem within a matter of months.  That covers both selling and refinancing.

That applies regardless of whether you are happy to pay any redemption penalty applicable.

Does it happen?  Without doubt it does.  There are many investors who see being 'economical with the truth' on their...

The problem with buying property as an investment is that you need to have enough money to put down as a deposit – and then it’s locked into your property for six months or more, until you can remortgage.  The days of ‘no money down’ mortgages are gone; you need a deposit to get any mortgage these days, usually 25% of your purchase price.

At this rate you’ll be lucky to add two properties a year to your portfolio, unless you have a big nest egg.

The secret is not to lock your capital into a mortgage, but to use creative financial packages specially developed for property investors.

Do you fit the buy-to-let lender’s typical profile?

Don’t lenders love property investors, because they have plenty of assets so their mortgage is secure?

No!

Buy-to-let lenders like their clients to have a nice, secure full-time job earning a minimum of £25,000 a year and have their own cash for at least a 25% deposit.  If you have too many...

If you don’t have a big wad of cash sitting in your bank bridging finance gives you more flexibility and, with the right bridger, much better deals.

Is it more expensive than a buy-to-let mortgage?  Yes, but it’s not more expensive than a joint venture where your finance partner will expect a big chunk of the profits or from using overdraft or bank loan facilities.

Also it allows you to buy properties that any mortgage lender would consider unmortgageable – even though there is considerable profit in them.

In terms of the monthly cost of finance it’s definitely higher than you would pay for a high street buy to let product but you can’t really compare the two.

The normal cost of bridging finance is typically 1% per month, but it can be cheaper, even down to 0.5%, depending on the property.

Usually you’ll agree a period for the bridging term.   it’s a buy to sell where the investor is very confident of a quick sale, that term...

THE QUESTION

I have a mortgage-free rental property that I want to raise capital against for another BTL.  I want to be able to find a BTL property and to quickly be able to raise capital against the existing property, so I am able to secure the new BTL once I find it.

To go through the whole process of finding the right property, applying to release the equity on the mortgage-free property for the deposit and then waiting for the mortgage to go through on the new BTL seems like a long-winded process.  I could risk losing opportunities on properties that might want a quick sale.  Is there is a simpler way of doing this without the increase in costs of releasing the equity early and sitting on it for a few months before I find the next property?

THE ANSWER

We have been doing exactly this for years!  Bridging finance can be arranged in under 4 weeks, so you can delay incurring any cost until you find the property you want to buy, but then buy it fast, pretty much...