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Month: April 2021

Holiday let’s: we can now use actual holiday let rental!

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Here we are at our Friday blog day again. I hope you’ve had a productive week!

As things start to open up we are starting to see more mortgage products appear in the market too. In the residential market this is most noticeable with the new 95% LTV products – a sign that confidence in is improving! And in the buy to let market we are seeing more options for holiday let’s. This year, with all the uncertainty around foreign travel, I think we will see an increase in demand for UK holidays. It will be interesting to see how that plays in the next few years – will we see more people falling in love with UK holidays and see their benefits?

This week I want to tell you about a new holiday let product we have available. For a while now we’ve not had great options for holiday let’s, but as things start to reopen and the chances of foreign holidays continue to look bleak lenders are spotting an opportunity.

Until now we have been able to lend up to 75% of the purchase price or current value  based on the 12 month AST rental figure. 

What this meant was the lender would only leverage it against a standard AST income, rather than the actual holiday figure, which may be higher.  Although you could use the property for holiday rental.

This can often work, but certain locations and property types don, and we’ve struggled with options for that until now.

A lender who used to be happy with holiday let’s (pre Covid) has now re-entered the market. There are some restrictions, the biggest being that the maximum loan to value is 70%; the rates, though, are lower in most scenarios to the options we previously had, so you may decide that 70% works.

The lender requires you to have a minimum income (between all applicants) and some previous experience. This can be with buy to let’s, it doesn’t mean you need to own a holiday let.

The big benefit is the income calculation. We are able to use 30 weeks income, at an average of the low, medium and high season rates. This can give a much higher maximum loan. 

Their minimum loan is £50,000, so covers all areas of England; the term can be from 2-30 years with interest only options available for the term. Rates start at 3.84% for a 2 year product at 70%.

As always, if you have any questions or scenarios you want to run through then please give us a call!

Enjoy your long weekend everyone.

Reasons To Change Agents

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Reasons for not changing your agent…… and why you should!

Hi everyone, yes, it’s Friday again already! I hope you’ve had a chance to enjoy a bevvy in the sun.

I think this lockdown has allowed a number of us to reflect on our current situations, and perhaps make overdue necessary changes.

I was talking to some like-minded individuals a while ago about my portfolio; it all started because I disagreed with the term “passive income” from a property portfolio. We all need to put the time in to build and manage our properties, but effective time.  We have 8 properties between myself and my partner, so not too many to manage.  And so the conversation started…

Mid-2017 I had had enough of my current lettings agent. Even though it was full management it required so much of my time to address things that weren’t being chased or dealt with by them.  I just had to change, I and my partner kept talking about it but there was always something that kicked it down the road.  As we have student lets, we always seem to be near the time for a changeover, so left it. When we finally made the decision to do something about I got diagnosed with breast cancer, which was early 2018, so there was no chance, but it also made dealing with them even harder and exhausting – and it was all my fault.  My excuses were always that it may not be better, wrong time and the old favourite of better the devil you know!

I had always had a good relationship with one of the guys working for the agent, but he’d left a while before.  I asked him, Manny, to keep my number….

September 2018. It could not have been a worse year, my Dad was also very poorly and we had taken a well-earned holiday in Sicily. I got a call from Manny asking if any of my properties were empty.  Two were (they were student lets at the time).  A couple of phone calls back and forth and some e-signatures later and both properties were rented out before I even got home.  Perhaps circumstances pushed me over the edge, but I have never looked back.

The new agent (Prominence Estates) are outstanding. They have given me my time back, and less pain at home!

But why do we procrastinate on important decisions that involve change?

I actually think it is a form of laziness, which comes in a variety of guises – comfort zone, poor excuses and just haven’t got the heart as a few examples. My friends and colleagues would not think I was lazy in the traditional sense, but I really couldn’t be bothered with the effort of that change, yet I was really struggling with the system I had.

All parts of the property business need good, decisive decisions.  Where a lot of us have full-time jobs time is our most precious commodity and should really be looked after.  Taking change head-on is important.

I have learnt from what happened and now focus on my power team.

Reflection on your properties and your power team is so important. Look to see what areas are too time-consuming (we obviously have to do some work) and consider other more efficient options.  Each one of the team has to count – estate/letting agents, solicitors, and brokers. You are paying for all their services, both time and cash. We often sacrifice cost for our time and therefore seriously underestimate our value of ourselves.

Check out recommendations, good service floats above the rest and poor service can’t hide for long. Listen to your gut! I ignored mine but thankfully Manny called me – the rest is history.

A good relationship should not be that hard, it really shouldn’t.

Enjoy your weekend everyone.

What can you do if you don’t have planning?

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I hope you’ve all had a lovely week enjoying our new freedoms, I know I have! It is tiring though!

This week I want to talk about what to do when a property doesn’t have the right planning for your plans. This covers a number of areas, and some are easier to overcome than others. There are a few solutions though.

Create a back up option 

This is probably the easiest solution to the issue. It works particularly well with conversions to large HMOs (when you’re not in an Article 4 area).  Large is classed as everything 7 bedrooms or more and requires a separate planning class.  Also semi commercial property that you want to convert to residential and can’t under permitted development. What it means is that you have an ideal scenario (if planning is approved), but also an alternative that could work without any change of planning class.

With the example of an HMO it could work as either a large HMO but also as a 6 bedroom. You will need to asses the refurbishment costs and the rental for both options and ensure that it works either way.  Some clients will do the works assuming they will get planning, and then use the extra space for a study or additional communal space if they don’t. Others convert it to a 6 bedroom and then wait for planning to be approved to do an additional extension or garage conversion for example. What you do will very much depend on the layout of the property and the timescales needed for either option.

With commercial property, this can mean keeping the existing commercial if you don’t get planning to convert it to residential. The rental again would need to work either way and you need to be comfortable with either option. Vacant commercial buildings can be difficult, so there needs to be a good demand for the commercial unit for the bridging to work, and then let out before we move it to a term mortgage.  We have had other examples of when this scenario works; converting semi detached properties back to a single dwelling, houses to flats and licensed HMOs in Article 4 areas looking to extend to larger properties.

A favourable pre-planning application 

There are instances where a back up option just doesn’t work. This could be where the costs or rental potential just don’t work financially for the back up option, or when there isn’t a back up option! This is usually for vacant commercial buildings but there are some other examples too.

In this instance, buying yourself some time to get planning is the ideal solution. This can be done through a conditional exchange or an agreement with the vendor. Where this isn’t possible, achieving a favourable pre application can really help. It really does depend on the overall case and it’s not necessarily a guarantee but it can be enough to complete on your bridging loan. Where a precedent has been set, or there’s been a previous application that has expired then it really does help.

Take advantage of  permitted development rights

There are plenty of areas where permitted development rights exist, and the rules have relaxed considerably recently.  Knowing what you can and can’t do is so important and can give you an edge over other investors.  We can complete without the full approval, as long as we know that is falls under PD rights.

Use alternative funds

The final option is to avoid mortgage finance entirely. This is not something that will work for everyone, but when you have the cash to purchase the property and are willing to take the risk, then this can help. Once planning is granted then we can look at refurbishment finance and can take advantage of the uplift in value that planning has created. There are clearly risks involved with this, so ensure that you have carried out your due diligence, and we are happy to talk about the potential exit routes before you purchase the property.

It’s really important not to get emotionally involved… you are in for a return in investment, keeping your eye on the prize can mean saying No!!

As always, we are happy to chat through any specific deals that you have and talk about your options.

The Avon Road purchase story continues……

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As some of you may remember, I bought a property in February to develop into flats.

My previous blog took you to completion, this is the continuation of the project.

The property was a 5 bed detached house with a 1 bed single storey annex attached on a great corner plot.  We We able to negotiate a 2 week delay between exchange and completion so we could get a head start on the very sparse refurbishment on both parts of the property.

By the time we completed on 19th February the Annex was finished.  Some of the house was started, but would need another 2/3 weeks to get that ready for letting out.

The priority was to get tenants in as quick as possible.  We need to add funds to the pot to cover the mortgage as well as planning fees and associated costs.  We used Open Rent as 3 company Directors are local so we could manage the process ourselves.  We put the property on before completion to minimise the time the property would sit empty; it really worked as the annex tenants moved in on the Sunday after completion – we also rented them the garage, so £850 per month on a standard AST.

The main house was a problem though as the drive was in front of the garage so has no parking at all.  Again, we advertised on Open Rent, but although we had plenty of interest at both £1500 and £1750 pm none of them passed the references.  That causes problems for our insurance so we couldn’t proceed.

Then a lady whose house had burnt down a few weeks earlier approached us.  She was currently staying in a hotel with their 2 children and sick mother, which was not ideal.  She had been asked by her insurance company to fins somewhere for 3-6 months while her home was renovated.  We pursued this, and were particularly interested as under COVID rules tenants can be difficult to move on.  This could potentially cause delays when we are ready to start the development so a tenant with a clear exit route was a winner.

We got in contact with the insurance company and negotiated a fully furnished price BUT that obviously meant it needed to be fully furnished – we only had 4 days (including a weekend)! The rent offered was £3650 per month for a minimum of 3 months.  Ideally we need more than 3 months, but it was important not to lose sight of the development prize and we were aware of the clear benefits this provided.  Any income towards the costs and mortgage are a bonus.  We have a mortgage with no ERCs so as soon as planning is approved and the tenants have moved out we can get on with the next stage.

My vlog, previously published, gives a bit more excitement than the written word – that said it was a manic few days.  The tenant was a dream as she really wanted as much upcycled goods as possible. I gained a lot of trust from how she dealt with the situation; we gave her a £200 budget for all bedding, kitchen utensils and soft stuff – she came in at £235.  Total spend, including 4 new mattresses, was £2168.

They moved in on the Monday evening.  As the monthly amount was under a serviced standard price, we insisted on 3 months up front; as they are totally incompetent, they tenant moved out of their hotel by 10am and the payment came through at 5.30pm. I can’t think of anything so stressful for the family .  The whole process wouldn’t have been achieved without the 4 Directors working so well together, and this really has shown me that I am business with a great group of people.

Food for thought…. Loss adjustors are always in need of accommodation.  As long as your mortgage provider is happy, it can be a lucrative income.  It would be worth finding contacts in the areas you invest to see if the timing works.  It is important to check the figures though, they want fully furnished and bills included, so it may not be worth it over a year’s contract.

Your partnership, work ethic and values are key to a profitable and stress free working partnership.  Everyone will have something to bring to the party and it is important to be mindful of that.  All of us have busy full time jobs, so effective and smart working is paramount.

The last few days of this property were genuinely hard work. I was able to build up such an open relationship with the tenant and found out she was a very community based person.  My close friend had lost her Mum days before they were due to move and whilst helping her pack (on the Saturday before the tenant moved in), I noticed a lot of disability equipment that was no longer needed. I spoke with the tenant and she was able to give all of it to her local elderly charity, which they desperately needed.  So a really positive end to it all.

A bit of excitement for the closing straights of lockdown.  Now to get the planning in next week and I will update you on that as we progress.

Enjoy your weekend.

 

BTL first or straight in to HMOs?

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This week we are looking at the pros and cons of both strategies; single let’s first or HMOs? It’s a question that comes up lots so here’s what I think!

 

Single let’s first 

 

The big advantage of this method is experience. Most lenders require you to have some rental experience before you go into HMOs or other more complicated properties such as commercial and blocks of flats. It also allows you to gain some rental experience and possibly some refurbishment experience too. You may want to do this first to feel more comfortable moving to bigger projects; to test the water and see if it’s something you enjoy doing. 

 

The main disadvantage is the money that you will end up leaving in the project in order to gain the experience. I have completed projects with clients that have enabled them to pull all their money out, but this is usually where they’ve added bedrooms within the existing floor plan or clever extensions. Usually you will end up leaving some money in, and that can then restrict how quickly you can move on to your next project. The other issue can be that you end up with a property that isn’t yielding as much as you would like and you didn’t really want a single let anyway! 

 

What about going straight to HMOs? 

 

The big pull towards HMOs are the rental yields. Of course this can apply to blocks of flats or serviced accommodation as well. This dilemma will apply to all of these properties to an extent as you need some experience for all of them.

 

What you need to decide is whether you want to pay an increase in the interest rate, to compensate for your lack of experience versus putting cash and cost into an asset which isn’t part of your long term plan.

 

In terms of interest rate for for HMOs, up to 5 bedrooms will be a slightly lesser rate than over 5 bedrooms. Both options will be higher than if you have some experience. In both instances the valuation will be a bricks and mortar figure and you will need to own your residential property. We can look at 2 year products to allow you to refinance to a more competitive product and hybrid valuation if that’s something that can be achieved. 

 

You will need to be looking for a property which doesn’t need extensive works (planning or building regulations) unless you have done something similar previously. You will require a management agent in place to look after the tenants. When you’re looking at refurbishment experience, you need to have done something similar previously, but this can include projects on your own home. 

What if you don’t have a residential mortgage? 

 

This is more tricky at the moment but there are still options. Single let’s are easier to place but there are more restrictions on affordability. For HMOs we need to think outside the box to find a solution, but it can be done! Some  clients choose to buy something cash and then refinance after they have owned it for a period of time and others use bridging to get around the experience. Looking at occupied properties can be an option too. 

 

When you don’t have the experience required, we need to balance this with something and this is usually a higher cost – whether that is using bridging or an increased interest rate on your mortgage.  This is a short term issue though, and once you have one property under your belt you have far more options.

 

We can usually find a solution somewhere though, so call with your enquiries and we can chat through the options.