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Buy BMV, then remortgage at full value

q&as Sep 30, 2018

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...

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How do I leverage my equity?

q&as Aug 30, 2018

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...

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What’s the benefit of a cash buyer strategy?

q&as May 30, 2018

THE QUESTION

As a new property investor with an abundance of desire, I see my strategy will be to mortgage at 75% LTV on an interest only, refurb and leave little or no money in, then re-mortgage and live off the cash flow and capital growth.  What advantage would it be for me to buy property outright as a cash buyer using alternative financing, unless I found a few incredibly BMV unmortgageable properties?

THE ANSWER

How many properties is it your objective to own?

How many 25% deposits do you have the cash available to make?

For almost everyone, they have less cash than the number of properties that they aspire to own.  So the simple truth is that everyone will run out of cash for deposits before they acquire the amount of properties they desire.

This brings into play one vital aspect, the knowledge and ability to recycle your cash; the need to understand and be able to use the same pot of cash to buy property after property.

To an extent I can see that you have grasped...

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What’s the best option to buy property?

q&as Feb 28, 2018

THE QUESTION

I'm not a homeowner, but looking to purchase - either residential, BTL or to buy a derelict property and flip.

I have a limited company with a turnover circa £200K and projected to double that in the next year.  I have no personal debts or defaults and a good credit rating.

I'm entrepreneurial, confident I can flip properties, and would like some guidance in funding purchases.  I've heard bridging finance, but don’t know if it’s the right strategy for me.

THE ANSWER

You have several potential options:

Use your main residence to flip

Advantages: no tax (CGT or income) payable on the profits

Disadvantages:

  1. Slow turnaround, as you will need to live in the property for at least a year to qualify for the no tax advantage
  2. Your ability to borrow is income-dependent and lenders are not interested in how much your company turns over, but how much profit you make i.e. make £20k profit on your £200k turnover and you won’t be getting...
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What is equity release?

q&as Jan 10, 2018

THE QUESTION
I've seen a lot of adverts recently for Equity Release, does anyone know how it really works?

THE ANSWER

Equity release has two meanings.

For the general public it refers to a specific type of mortgage available only to the elderly who are asset rich, but cash poor.  In effect it means that they can borrow against their property and use the cash to enhance their lifestyle or pay for needed repairs to their property.

The interest is rolled up, so no monthly payments until they either die, go into care, or sell the property.

It is also used on some occasions to mitigate Inheritance Tax, as the amount owed at death reduces the value of their estate.

For a property investor it just means refinancing an existing property to release cash so you can use it to invest in more property.

You can learn more by:

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No money down ... it’s possible

q&as Dec 10, 2017

THE QUESTION

At a recent property meet the subject of using an unencumbered property as security for Bridgers came up.  Is it true that you can get 100% finance by using the house you’re buying and your unencumbered house as security to get the deposit money and refurb costs from the bridging?

THE ANSWER

Yes, it is perfectly possible to achieve this using bridging finance.  In fact, I teach exactly how to do this under the Fast Funding Formula module in my Ninja Investor Programme workshops.

If you own an unencumbered property you can offer it as additional security to enable you to borrow 100% of the purchase price.  More than that, you can also borrow the refurb costs too.

Bridgers will lend you up to 75% of the value of your unencumbered property.

It is also possible when your current property in not unencumbered, but has a lot of equity in it, typically 50% plus and this is a more common situation.  Then bridgers will lend on a second charge basis.

...

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Two into one won’t go

q&as Nov 10, 2017

THE QUESTION

If we were purchasing a property for cash would it be possible to purchase using two bridging providers to provide 100% of the purchase price?

The first one would have the first charge and the second would provide bridging on a second charge basis (such as Precise) and both forwarded amounts would be combined to form a 100% cash purchase.

The intension here isn't to deceive either provider and to be up front from the outset with both providers - just interested in other opinions as to whether it's doable.

THE ANSWER

No bridger is going to lend you 100% of the value of a property even if they have a first charge over it.  They will never put themselves in a position where, if they had to sell the property quickly, they would be unable to recoup all of their investment.

If no bridger will lend 100% of value on a first charge, there is zero chance of any bridger being daft enough to top up to 100% of value on a riskier second charge.

However, if the question alters to...

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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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