Converting a commercial property into a residential property is a smart move – there is an overabundance of commercial properties, many that have been standing vacant for months or years.  Equally there is a shortage of housing (and lots of media coverage about the pros and cons of new build projects) – it really is a no brainer.

Commercial properties include pubs, care homes, shops, offices, schools and many more. 

However, many investors don’t realise that a commercial property without a tenant in situ is not mortgageable.  Commercial lenders’ main concern when considering whether to grant a mortgage is ‘will the borrower be able to pay the loan back?’.  As far as they’re concerned, no tenant equals no income.  No income equals no ability to service the loan, so they won’t lend.

Many vacant commercial properties remain for sale for a considerable time.  This is simply because would-be buyers lack sufficient cash reserves to make a purchase without a mortgage.

For the savvy invest...

If you’ve been growing your property portfolio and have a few conversions and refurbs under your belt, you might like the idea of becoming a developer and building a multi-home project yourself.

You may have been watching Grand Designs, the Big Build and other similar TV programmes and feel ready to tackle a bigger project with homes to either rent out or sell.  However, it’s not as simple as a straightforward conversion.

Firstly, you’ll need specialist development finance - not a self-build mortgage or even a bridging loan.

Almost without exception development finance lenders want provable, documented, comparable experience that the borrower has successfully completed a project similar to the one they’re now seeking to fund.

These lenders have a policy of putting up barriers to entry and this lets them cherry-pick the projects that they see having a high chance of success.  Development finance is not given for ‘on the job’ learning. 

Piggy-back for what you lack

They want to see...

THE QUESTION

I've sourced a 20% BMV deal and am wondering if it’s possible to get an interest only mortgage for the purchase taking into account 80% loan-to-value, so I can purchase with a smaller deposit?

THE ANSWER

You are on a loser if you want to get a mortgage lender to lend against value and ignore the purchase price - at the point of purchase they never do.  It is always the LOWER of purchase price or value.

However, some, but not all, bridgers will lend against the value and sometimes up to 75%, but it is often not quite as simple as that.

One key factor is whether the property is or has been marketed by an agent or not. Using the example of you think the true current value is £100k but you have negotiated to buy it for £80k. If it has not been marketed a bridgers valuer may (but there’s no guarantee) value it at £100k.

However, if it has been marketed and say the asking price was £85k, then valuers would override your idea its worth £100k and value it at £85k at best. In...

There is one thing that can seriously dent the profit in any project and that’s overpaying for the property.  An essential part of your due diligence is to work out the maximum you can afford to offer on any property, while still giving you the profit margin you need.

It’s easier to work backwards when doing this.

Start with the end value that your property will be worth once you’ve completed any work that you propose to do to it.  You should be able to find comparable values of similar properties that have sold within the last few months.

The majority of properties that investors buy are flats, terraced and semi-detached houses.  They don’t tend to buy large detached properties in five acres of ground, this means that comparable values are much easier to obtain for these types of property.

If you are buying a commercial property this may not be so easy and you may need to engage a commercial surveyor to get a true current and future value.

The more common residential properties ...

Most investors think that the only way to finance deals, when their bank account hasn’t got enough in it, is to joint venture (JV).  To maximise your return on investment there is a JV Pro-Fit Retainer strategy.

Stop giving away 50% of your deal’s profits when you joint venture and, if you do decide to set up a joint venture stay on the right side of the FCA.

• PRO = Professional – the way you approach your joint ventures
• FIT – Fit for purpose – ensuring your JV agreements are legal and can’t come back to bite you.

The key thing to remember is that the Financial Conduct Authority (FCA) states that you must only joint venture with someone who is categorised as a sophisticated investor.  That means you need to know about PS13/3 and what constitutes a sophisticated investor and there are seven main criteria for these.

1. An annual salary of £100K+
2. Independent assets of £250K+ (not including equity in their main residence)
3. Employed in an investment capacity in financial service ind...

THE QUESTION

If I buy a property with five flats and then split the titles and try to get 5 BTLs mortgages for the flats: would there be an issue with mortgage providers not being willing to provide mortgages in the same building?

THE ANSWER

Simple answer - yes. This issue confuses a lot of investors.

1. You cannot be both freeholder and leaseholder, so the freeholder must be a separate entity to the leaseholder/s. Often this means using/creating a Ltd Co to own the freehold
2. BTL lenders have over exposure rules. This means they restrict lending in any given block to 20/25% of the total number of flats. In this case, five flats means you will need to find five different lenders
3. BTL lenders don’t like the same entity owning all the leases in a building.  So having all five leases in the name of the same leaseholder will cause problems.  You may not need five different people on each of these leases, but you will need a minimum of two each owning two or three leases.  If these peopl...

Even at property meets people run in the opposite direction if anyone suggests that bridging finance might be the solution to their financial challenges.  

Other well-meaning investors will advise you not to touch it because it’s too expensive.  They’ll warn you that you’ll lose your shirt - or try to frighten you off with other prophecies of doom.

So here’s a question for you:

Does bridging finance live in your ‘scary box’?  

If you’re an investor that’s never used bridging it probably does.

We all have a scary box and what is in mine are professional people, i.e. solicitors and mortgage advisors who advise people not to use bridging finance.  I find it amazing that people who should be knowledgeable about property don’t understand that, in the right circumstances, bridging finance should be your first choice, not your last choice.

What is it about bridging finance that’s so scary?

It’s perceived to be expensive with very high interest rates.

Bridging rates are significantly h...

When you’re negotiating with the seller of a property you are interested in, don’t forget to prepare properly.  That means being ready with your persuasion strategies. One of these is the Calculator Close. This is how it works.

Rule 1:   You must give control of the calculator to the other party.

Rule 2:   Any figure punched into the calculator must come from them, never from you.

Start with the asking price – get them to enter this in the calculator. Then break down all the costs involved in getting it to the ceiling price, one by one, including:

• The cost of the needed refurb; you’ll add credibility by breaking down the cost into separate component parts, materials and tradesmen or room by room.
• Any buying and selling/refinancing costs (including Stamp duty land tax)
• Maybe borrowing costs
• Definitely the profit you need to make from the project to make it worthwhile taking on.

Don’t allow them to use ‘bargain basement’ costs, explain that you like to use good quality mater...

THE QUESTION

I’m seriously considering converting my HMO into serviced accommodation (SA).  How easy would it be to refinance it as SA?

THE ANSWER

Buy-to-let (BTL) lenders invariably require a minimum letting term of six months and a maximum of 12 months in the terms and conditions.  That makes short-term lets a no-go area for the mainstream lenders.

Commercial lenders see serviced accommodation as in the same category as B&Bs and guest houses as it uses the same business model.  These lenders fall into two group:

1. Those that are OK with both SA and B&B and are happy to lend
2. Those that don’t like SA because the whole building isn’t used for the same purpose i.e. one flat in a block.

Due to the lack of a certain income lenders are nervous about the security of their loan and want some assurance that the income from the property will cover the mortgage payments comfortably.

If you remortgage an HMO lending is straightforward as you have the ASTs and a track record to show the ...

Unmortgageable properties represent a gold mine of opportunities!  But before you jump in you need to understand why they are unmortgageable and which ones have profit hidden in them – and the deals to avoid.

Unmortgageable properties are valuable because:

1. There is significantly less competitive buyer interest
2. Vendors are already resigned to accepting below asking price offers.

The vast majority of property investors are mortgage-dependent and when a property can’t be mortgaged they walk away.  This leaves the field clear for the few investors that have the knowledge of how to buy this type of property.

Better still, not only do mortgage-dependent investors walk away from unmortgageable properties, they often don’t even spot them; they’re not on their radar.

Why is an unmortgageable property such a good deal?

The owners of an unmortgageable property are usually aware that it’s unmortgageable.  Often this is because they’ve lost one or more potential buyers already, because t...