When you’re building a property portfolio financing your investments is most often done by borrowing a large part of the purchase price, but if you have accumulated a pot of money or are fortunate to have a windfall, the question arises – do you use your cash to buy outright or still borrow to purchase?

Logically, if you can fund a deal with cash, you should; that way you have zero borrowing costs.

Investors are often reluctant to do this on the basis that tying up their cash in one deal takes them out of the game if another juicy deal comes along.  However, as the saying goes ‘there is more than one way to skin a cat’.  If you’re smart you can still grab that juicy deal, without having to refinance your current properties to release cash.

It's a Process

If you use bridging finance intelligently you can make that purchase without any hard cash at all.  There are some key things that you need to know:

•  A bridger will lend 75% on the...

THE QUESTION

I have a portfolio of four houses in London with an approximate value of £550K each. I have used the remortgage strategy to finance all of them.

All the houses are rented with excellent tenants.

Now I want to extend my portfolio to be able to buy, refurbish & resell.  I simply don’t have £500k+ available to invest into this. 

Can you advise me where I could get potential investors from that are willing to take a certain % rate each month as interest.

THE ANSWER

To begin with, please note that with FCA directives such as PS 13/3 and PS20/15, you are not permitted to ask for money speculatively via social media.

What you think solves your need (other people’s money) won’t work, as I explain further down.  You need a complete re-think of how you buy investment property because you have fallen into the trap that awaits every investor: 

You run out of cash before you run out of ambition

It took you four properties to hit...

There are self-build mortgages, but these aren’t available when you’re building a property for sale or rent.  These are considered to be commercial developments and are financed in a specific way.

The major banks pulled out when the credit crunch hit, with disastrous consequences for many of their borrowers.  They've never really got back into this area of lending again. However, the gap has been filled by small, specifically focused lenders who typically offer this type of finance and nothing else, although a few do offer bridging as well.

In order to deter all but the strongest propositions there are some significant hoops to jump through. These are:

•  They require a high cash input from the borrower
•  The borrower needs to have provable, relevant previous experience of a similar type of new build

If you don’t fulfil either or both of these requirements you’ll need to get creative about how you can meet them.

The Money

This is required...

THE QUESTION

I’m looking for advice on development funding. I have been offered the chance to put in one third for some land - which has planning permission for four barn conversions plus a new build plot. The purchase price of this land has been offered to us for £750k with a GDV for the houses of approx. £3.5m. 

I have a few BTLs, but this is the chance for me to get into development. I would need to borrow £250k for the purchase and more for the build costs and associated fees, but this gives great returns. 

What would be the best way to borrow this money? 

THE ANSWER

Development finance is the type of finance used in this - it’s a 'does what it says on the tin' thing - you have a development that you want to finance.

Development finance lenders are not going to be the major banks, or household names. It used to be but the major banks quit this type of lending in the 2008/09 credit crunch and have never got back in, in any meaningful...

THE QUESTION

We’re new to investing. We have 5 BTL but they’ve all been bought locally at market value.  We have had these properties for nearly a year. 

Our plan is to start flipping properties and we have a pot of £115k to invest. However, properties in our area are really expensive. I’ve explored auction, but we’re not ready for this yet. We will be using bridging finance.

My question is;

•  How do we even compete against other investors that have millions??
•  Are we running before we can walk?
•  And can anyone recommend any advice? What areas are best? 

The plan is to flip to build more equity and then our aim is flip one a year and buy one BTL a year.

THE ANSWER

‘How do we even compete against other investors that have millions?’ Your perception here is misplaced, there are certainly people who have millions in the property game, but you won’t be completing with them. Why? Simple, they have much bigger...

One of the questions I get asked often is which is the ‘best’ strategy for a property investor.  That depends on what your definition of ‘best’ is.  Do you want a quick profit, a long-term income, challenging projects, a hands-off business – or something else?

Probably the most popular investment strategies are buy-to-let and buy to sell (flips).  

•  Buying-to-sell (BTS) gives you a significant cash lump sum (if you do it right) within months.
•  Buy-to-Let (BTL) gives you a much smaller monthly profit (if you do it right) for years to come, with the bonus of potential capital growth (depending on where you buy).

Some people focus on BTS because their current circumstances mean they are not mortgageable. That prevents them using the BTL strategy, until they’ve built up their profits and established a sufficient credit record; at this point they become a more attractive risk to lenders.

Some people choose to BTS properties...

THE QUESTION

We have agreed a purchase price for a lease option at £295k.  We have had the lease for two years and have one year left.

The property is now worth estimated £400-450k and we are looking to finance at this price.

Option 1. Try to find a lender who will go straight to mortgage at higher valuation 

Option 2. Find bridge to let lender who will provide bridge at £295k and move to mortgage at higher valuation

Option 3. Are there other options?

THE ANSWER

Number 1 is not an option because your relationship with the current owner breaches mortgage lenders’ requirement for any purchase to be an arm’s length transaction i.e. there is no pre-existing relationship between buyer and seller.  The option agreement is evidence of a pre-existing relationship.

Number 2 will be a struggle because bridge-to-let lenders (not that there are many) are predominately mortgage lenders who dabble in bridging. There will be a reluctance here to lend...

THE QUESTION

I plan to purchase four BTL properties over the next 12-18 months, with a value circa £200,000 each, all on 75% mortgages through my limited company.

Rental income for each will only be around £850 per month, less interest payments and maintenance cost net £500 - £600 max.  I intend to leave the rental income in the company as taking it would push me into an unreasonable tax bracket. 

Property prices in the area I live have doubled within the last 10 years, and will probably do the same over the next 10 years, so using that equation purchase price of 4 = £800,000

Potential value after 10 years = £1.6m

Would you work it differently?

THE ANSWER

Rental income of £850 on a £150k mortgage just about scrapes the required rent to borrow 75%, so it ticks that box.

If you just want 'minimal effort, sit back and let it happen' type of investing and four properties satisfies your landlord portfolio needs, then buying four...

Airbnb has a lot to answer for.  The concept of letting a property or even a room in a property to people who need an alternative to a hotel has become an opportunity for investors.

However, there are alternatives to getting rental income as well as serviced accommodation.

Homes of multiple occupancy

If your property is suitable and you know what it needs to get an HMO licence from your local authority, this can be a great way to make a good income.  It’s a step beyond a shared house arrangement; most tenants in an HMO will expect locks on the doors to their rooms, an ensuite and at least a kettle – and maybe a microwave – in their rooms.

Clearly an HMO with four tenants is likely to make more income than a four bedroom house let to a single tenant.  Getting a BTL mortgage for an HMO will probably require some expert advice from a specialist broker.

The plus is that tenants tend to be long-term, often people who are working a long way from home and...

THE QUESTION

I’ve been looking at developments, if I was to cash build let’s say a row of terraced houses, once built can I refinance at whatever LTV available, take the cash, and rent the properties out under the company? 

I’m just looking at other avenues rather than the normal build and flip scenario. I’d like to know if there are any implications if I wanted to build properties with the sole purpose of refinancing and renting out.

THE ANSWER

Build to rent is an established concept, so getting finance to pull your cash out should be fairly straightforward.

You should be building to a minimum profit margin of 20% of GDV, but preferably more. You can finance at 75% of GDV - subject to the rental income being sufficient to borrow that loan to value. 

One element that should add to your bottom line profit with build-to-rent is the standard of internal finish. If you are building to sell that quality has to be good enough to convince would-be buyers...