Thinking outside the box: where can your deposit come from?

In this current market, we really have a big split in the situation of our clients. On one hand we seem to have plenty with cash available to purchase property and then refinance once works are completed. On the other, however, we have so many people trying to get into the property market but struggling to find the deposit funds.

Before I get to the options, one thing that comes up often is how much money you need to prove and whether credit cards can be used.

You need to be able to show the lender where the deposit is coming from (and it needs to be in your bank account!), as well as any refurbishment costs. This will need to match your schedule of works, and a valuer needs to agree that they schedule and cost match the works needed in the property. For example, if there’s clear evidence of damp then the solution needs to be covered off in your schedule.

How can you use credit cards within this? 

I hear property mentors often speak about using credit cards to pay for refurbishments so that you can refinance and pay it back without putting your own money in but to be honest it doesn’t always work that way! Lenders will want to know that you have the funds to carry out the refurbishment – if you’re not able to finish it then they will be the ones left with it and that’s not what they want!

As with lots of things though, it does come down to experience. If you’ve done it a few times before and got off your bridge successfully then they are more likely to be more flexible with where your money is coming from and we may be able to agree it.

Here’s some ideas for where your funds can come from 

Savings 

This is the easiest one, but often the one that gets used up first! If you’re serious about getting into property then you really do need to think about how you can save money from your day to day expenses to creat funds for it. Especially for your first project when the lender wants to see you’re using your own funds. Look at a budget planner, find a savings account that encourages monthly savings and go from there. There may be some sacrifices that need to be made!!

Refinance of your residential or other property

Refinancing your residential property can be seen as risky by some, but you are moving the equity from one property to another. With residential mortgages back up to higher loan to values and lenders now using bonus and commission again this may be a good time to look at this option.

Remember that your home may be at risk if you do not keep up repayments on it, so look at the overall picture. It’s an idea to explore though.

Gifts

Often when investors are looking for investor funds, family and friends are first on the list. It’s an easier sell, but comes with more pressure! Gifts from family are easier to use for your first few projects (before you build up some experience) and it counts as your own money!

Joint ventures 

This is an alternative where you are relying on the experience of someone else. It means your JV partner has more security over their funds and equally you have more support on the project. You are able to split the shareholding to reflect the funds and experience of all applicants too, so it’s flexible.

One thing to remember is that generally all applicants to the mortgage will need to sign a personal guarantee to be jointly and severally responsible for the loan, so ensure that your JV partner is happy with that set up.

Company loans 

Something we are seeing more of, is where clients have a (non- property) company which is profitable and they want to use these funds to put into property. It is a tax efficient way of doing things, but ensure to check with your accountant. You may have utilised a BBL in the company too, so you will be able to use that. Most lenders will allow you to use company loans as long as they are interest bearing.

Angel investments

Once you’ve built up a track record of projects – usually one or two similar sized projects – you can move on to using other people’s funds!

Loans are an option where you run out of your own money, when you factor in the overall costs. Most lenders will now be able to use investor loans where there is a loan agreement in place and no charge on the security property. There needs to be a clear replacement method and any interest payments need to be taken into account so bear that in mind.

With the right strategy you will be able to recycle some of your funds, so you’re not starting from scratch with each project – although ‘no money left’ deals are hard to come across at the moment!

As always, let us know if you want to run anything past us!

 

 

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, perhaps make overdue necessary changes.

I was talking to some like minded individuals a while ago about my portfolio; it had all started because I disagreed with the term ‘a passive income’ from a property portfolio. We all need to put 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, me and my partner kept talking about it but there was always something that kicked it down the road.  As we have student let’s, we always seem to be near the time for 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 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 are 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, brokers. You are paying for all their services, both time and cash. We often sacrifice cost for our time and therefore seriously underestimate the 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.

Case study: When the wrong broker nearly kills the deal!

Happy Friday everyone. As a friend said to me, as long as one foot is in front of the other, we will get there… with kindness, patience and tolerance.

This case study covers a few areas: the correct broker; the correct broker and the correct broker!

I was offered this case about 6 months ago, maybe a bit more, but the client decided to go with a broker that wasn’t comfortable with his own expertise this area, but the client really trusted him.

The project is a large single property, ground up build.  Exit is sale and the client is a professional in another, busy industry.

I was approached again at the beginning of November, it had been with a lender for over 4 months and it had collapsed.  The lender had declined the case.  It was problematic in that the build warranty hadn’t been started and also it could be considered as owner occupied at the end – the property was larger than his own, and in the local area. Giving the correct evidence and assurance that it wasn’t was key.

The client had also run out of money and needed a speedy completion or the contractors would walk, and that can be a nightmare even without Covid to worry about!

We were able to utilise as much from the previous lender as possible – valuation report and QS updates, which eased some of the costs.  I put the client in touch with a very short term investor to cover a cash gap and then got to work on smoothing out the rough edges.  The build warranty should be started at the beginning, it’s not impossible to get it late, but it does increase the cost.  The lender, LendWell, were as always, fantastic.  They keep things in a sensible straight line. If there are any bumps then they are there to have a sensible conversation, and are always working towards completing the case. With other lenders it can feel like they are trying to find a problem.

We were able to agree a facility which got to client 25% of the GDV for 12 months. His build time had only got 4 left so this leaves plenty of time for any hiccups and sale.

Having a broker that is not transactional meant I, the Director, got totally involved. Managing the build warranty; warranty for a swimming pool and even working with the contractor. Keeping things smooth and transparent.

We completed on the 18th December.  The investor was paid from the drawdown funds and everyone could breathe again.

It really wasn’t a straightforward case – part built properties can be problematic, so you really need to know what you are up against.

The client learned a few lessons as well.  Every day is a school day, they say.

I can’t emphasise enough the importance of the right person for the job.  It is coming up time and time again and your time and stress never seems to be in the equation.  Someone said buy cheap, buy twice.