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!

 

 

What is going on with the stamp duty deadline and Jackie’s update

I keep saying this – but I can’t believe it is Friday again!!

I am starting to venture out and its taking some getting used to… We had one night out for a very belated November birthday this week and I’ve needed a good few days to recover!

We are now at the stage when the last cases will get through for the higher SDLT discounts ending 30th June. 

For the £250k and under purchase prices, there are still a few months to go – but be wary, the conveyancing side is starting to bubble over. We are being asked by clients for solicitors details to take on cases when their own are simply too busy to help.

What’s the best way forward if you get a good opportunity?

I would suggest, if it’s available, going dual representative. This is where the solicitor acts for both the lender and yourself.  I wouldn’t be holding your breath for a speedy completion, but it may knock off a good few days/weeks, which could be vital.

It is also important that you make sure you have a solicitor in the bag BEFORE considering an auction timescale case.

I have recently exchanged on a Manchester property. I has all been a bit quick after a year with an option.  With the planning application taking so long, together with a change of tack due to a Housing Association now wanting the plot, things have not been straightforward.  Planning has had to be resubmitted due to the changes so its now going to take even longer!  When we were ready to proceed, the original solicitor simply couldn’t take the case for completion on the 18th June. That has caused a real headache.  Thankfully my go to solicitor (Phillip Adam) took the case after I begged him! Honestly it was a really kind deed, as I know he is as busy as anyone.

So why have I changed direction with my portfolio?

The reason for going for this property and plot was to expand my portfolio. I have had vanilla buy to lets for some considerable years and although they are lovely and safe, I wanted take a bit more risk to get the higher potential rewards.  I am selling one of my flats as the return on Manchester site is worth the cost of selling the flat.

It’s interesting that your pension pot doesn’t tend to go on the radar… until you realise that your years left to fill it suddenly get very short.  Having had a financially difficult divorce in my 40s, time was short if I wanted the option to retire at a reasonable age.  I try to keep a split between earnings, pension (very tax efficient to put money in from a company) and properties.

Enjoy your weekend and I hope you give yourself time to recover 😊

Cash Vs. investor or bridging borrowing  – which is king..??

Happy Friday everyone.   I hope you are all digging deep, it seems a lot tougher nearing the end.

As we work with so many property investors, the question of whether they should use cash or bridging to fund a project often comes up… so I thought this week’s blog would give both sides of the coin.

Your Own Cash

It’s easy to say it’s cheaper as you aren’t charged interest or fees – and at the moment when bank interest rates are so low it is tempting, but tying up cash stops it being used for something else, which will give a return. You could use your cash to fund two or three rather than just one project if you used bridging finance too.  It’s really important to always look at all options and what the net cost actually is. It all depends on how many projects you are planning on completing at once, and whether you have contingency funds if your project runs over time or cost. If you want to grow quickly then having cash available for the right project is important.

If you are buying solely with cash then another consideration should also be to use a solicitor that is used to working with lenders solicitors. If the legal work has only been looked at as a cash purchase then it can make it difficult when refinancing.  There is more work involved when someone is placing a charge on the property, and this can then cause delays at the refinance stage of its not been dealt with initially.

Using Other People’s funds

This really does keep your cash available for a profitable opportunity, and is the lowest cost borrowing option if you can access it at a reasonable rate given that there are no arrangement fees, exit fees and lender solicitor fees. Considerations would be:

  • Is there enough profit in the deal to ensure that your investors are repaid within the timescales you have agreed, and what’s your back up option?
  • You will usually need to borrow the full amount for the full time period, so your interest payment needs to be calculated ok this basis.
  • If you are using it with bridging, Lenders need to ensure the right people are on the application, so you need to have some experience to bring to the project before the lender will be happy for you to use investor funds.

Bridging Finance 

So after all that, why would you use bridging finance? The biggest advantage is the security; of having a mortgageable property that a bank will lend on, and a lender’s solicitor having seen the legals and being happy with the property. There is never a guaranteed exit to a term mortgage but it does help.

As we touched on before, it frees up your capital to look at multiple properties, or it can allow you to look at bigger projects with bigger profits. If your total spend becomes a 25% deposit (and maybe refurbishment costs) suddenly your budget is much bigger.

There are ways to mitigate costs too, especially when you’re looking at keeping the property:

  • If you are borrowing the refurb costs as well as the acquisition, then you will obtain the refurb costs in arrears as you spend them. This reduces the interest payable by about 40% and therefore can balance out the arrangement fees, exit fees and legal costs.
  • There are some bridge to term mortgage options, where there is a reduction in arrangement fees, valuation costs and/or legals when you use both products with the same lender. This can mean that you’re not paying out as much, and may therefore mean it’s a lower cost option to private investor funds for example.

As always, it does depend on your circumstances and the project you are looking at so please feel free to give us a call and chat it through.

Thinking outside the box: Options for your HMO

Happy Friday all, welcome back to lockdown! This time things do feel different; the housing minister has been clear that it is ‘business as usual’ and we will be doing all we can to keep it that way.  We have been working from home since March so nothing changes for us! 

This week I want to talk to you about some options for your HMOs. There has been talk in the industry that the boom of HMOs is over, of which I disagree! In the HMO market we are seeing the need for diversification, though.

During these times we are seeing that tenants are becoming less likely to want to share facilities if they can afford the a choice. HMOs for professionals are perhaps less popular as people are working from home more, aren’t travelling for work and don’t need to be in a specific place. So what else could you use your HMO for? 

Longer leases for the whole property 

This is an area that has traditionally been tricky to obtain lending, but as banks crave certainty as much as landlords in such an uncertain market, things are changing. It has been a contentious issue for some time, but we are now seeing a change in lender appetite, allowing longer leases as well as vulnerable tenants in the property.

There are certain caveats to the lease, but we are able to have the draft lease checked by the lender’s legel team prior to submitting the application.  This allows you to have a level of certainty from the beginning. 

The product is available on a standard HMO interest rate, so you aren’t paying a premium, and you don’t need any specific experience as long as you have had an HMO for more than 12 months.  This really has opened up a new option! We have completed cases using this scenario and it is a straightforward process.  I would suggest engaging with your provider early on.  You need to understand what they need from a property in terms of facilities and location to ensure that you don’t spend money before you know it’s a viable option.

The student sector

Six months ago as we entered the first lockdown we were worried about what was going to happen to student let’s and some lenders even stopped allowing them entirely. What we have seen since September, however, is very different.

We are seeing students who are craving some sort of normality moving into their new homes as planned. We are also seeing students preferring a shared home rather than student accommodation, and wanting to commit for two years rather than one to create some stability.  

Lenders are back in the market after this shift, and so it may be worth thinking about this as an option for next year if your location allows.  As always, diversification is key, and we are seeing this through a variety of methods; different types of property, alternative locations and thinking outside the box for lease or tenant options. 

As always, we’re here to let you know how this could work for you so give us a call to discuss it further.

Stay safe, and try and enjoy your first lockdown weekend! 

Focus on refinances: The benefits of a valuation pack

Hi everyone, I hope you’ve all had a good week.  I’m sat today listening to the news regarding regulated mortgages and how the higher loan to value products are being reduced, but it seems the opposite is true in the investment market.  Lender’s are relaxing more into their pre-covid criteria, perhaps because they have always got their 25% buffer available it seems less risky.

This week I want to talk about refinance valuation packs.  This is something that we are asked about regularly, especially when we investors want to maximise the valuation on a refinance!

What is a valuation pack?

When you have finished your refurbishment or conversion, another valuation will carried out on the property and we really want to maximise the value of this to allow you the opportunity to pull as much money out of the property as you want.  The purpose of the pack is to demonstrate the added value on top of the purchase price to the surveyor.

You would want to include topics like:

  • Before pictures, with a description of what the rooms have now become
  • Comparable evidence for the rental values; you can use Spareroom or similar to get this
  • Comparable evidence for the property price using Houseprice.ai or similar; the valuer will always use sold comparables
  • All required certificates for the property, ie electrics, fire safety, gas etc
  • The HMO licence if required and if you have it
  • Full schedule of works with corresponding after works pictures
  • If an HMO, then dress some of the rooms, so the valuer can visualise them.

The packs can be really professionally created and that also helps.  This shows the efforts you are prepared to go to as a landlord.

So why would you create a valuation pack?

It is always tricky when you produce information for a professional. You need to gauge it correctly as you don’t want to be seen to try and tell the surveyor what to say or how to do their job!  Providing evidence, rather than the calculation of how you got the figures themselves can be more useful.

The main advantage of the pack is to show what the property looked like previously, and how you had added value to it, over and above the purchase price and cost of works.  That is where the before pictures are so important, so take lots while you can! The valuer will use the comparable evidence,  but remember that will include your own purchas,e so you need to make sure that they don’t use it!

The pack has a couple of other uses though. They can be used to start putting together a portfolio of your projects; as you start applying for bridging loans and mortgages, lenders need to see your experience and so we can use some of the information in this pack towards that.  You can also use it in part or full to attract investors to your brand for future property purchases.  Creating a brand that people want to invest in is key in today’s market and can open up so many opportunities.

How do you use the pack?

I would always suggest that you meet the valuer at the property for a refinance valuation.  You can help him visualise what you have achieved as well as talk to the surveyor about your type of tenants, demand in the local area and so on.  If they have any questions they can be dealt with straight away which can help the report to come back quickly.  This is also an opportunity to engage with the surveyor and give them your pack.

 

As always, if you have any enquiries then please give us a call.