THE QUESTION

I have seen a property that has 60 years remaining on the lease with great potential to develop and sell, but the price is at market value and the length of the lease makes it a risky proposition.  If we could get a lease extension prior to purchase that would work, but agent claims it will cost £107,000.00 on a property valued at 600,000.00.  I need expert advice on the best way to tackle this.

THE ANSWER

First of all, get realistic about the value of the property pre and post lease extension.  Get clarity around the costs of buying, refurbing, extending the lease and selling; factor in the profit you need to make.  This will give you the realistic price you need to buy at or below.

Negotiate the purchase price you pay based on the fact that this is cash buyer only territory.  This means that those who have the ability to buy it will want a healthy discount to reflect the scarcity of people with the ability to complete the purchase.

• Get...

THE QUESTION

Here’s a scenario:

• Purchase at 150K
• Exchange and then carry out works expected to bring valuation to 185K
• Keeping a strong and detailed record of all the building works, when the valuer comes and tells you (hopefully) it’s worth the full 185K

How does the lender feel when they know you only paid 150K?

Also how does the vendor get their 150K, is that just a paper exercise through solicitors?

Do you need to have a lender ready to go and do they want to know about the works you are carrying out prior to agreeing the loan?

THE ANSWER

It is possible to achieve your objective of needing little or no deposit, but you have to be very specific in how you set it up.  I have arranged the finance for exactly this with a number of clients.  I have also taught this exact strategy on my workshops for the past four years.

Doing the exchange with delayed completion is relatively simple, the vendor has to buy into the concept and give you both the keys and...

THE QUESTION

I’ve been advised to go out and find deals and the finance will follow. I have found a few suitable projects, done the sums and offered to purchase.  We lost a deal earlier in the year as we failed to finance it and we currently have two deals on the table that are good few weeks down the line and the vendors are starting to get itchy feet (quite understandably).

This has really started to stress me out. The reason for the immense stress was that I was putting my credibility on the line. I was making promises to do something that i had no way of fulfilling.

Now it’s certainly motivating, it makes you take action, but raising finance is not a quick process.  It takes time to build relationships and trust - it’s not something you can fix with 'hustle'.

So, how do people deal with this?  Do I need to change tack and concentrate on getting financial backers on board first and then start looking for deals?

THE ANSWER

This is the perennial...

THE QUESTION

I have found a property I want to get a buy to let mortgage for, but I have a bad credit rating.  The house also has no kitchen, are there any lenders that would be able to provide a mortgage for this?

THE ANSWER

Take a reality check on this one, you have zero chance of getting a mortgage on this property as a means of buying it.

Leaving aside your credit history, a property has to be lettable on day one to get a mortgage; if it has no kitchen, it plainly isn’t that. So it is a non-starter in the way you want to purchase it.

For a property to be mortgageable:

• As a main residence - it has to be habitable
• As a BTL it has to be lettable and that is different to habitable. It means, in the lenders' surveyor's opinion, a tenant would want to pay good money to rent it on day one

Fitting a kitchen between exchange and completion might work, but if the rest of the property is not in good repair, it is still unmortgageable.  It's very...

THE QUESTION

What’s the best way to fund an auction purchase?  Do I need bridging or will any lenders give an undertaking to release funds WITHOUT knowing the final purchase price?  And who can beat the 30 day completion date deadline?

THE ANSWER

You have a small number of finance options when buying property at auction:

1. Mortgage
2. Your own cash
3. Someone else’s cash
4. Bridging finance

Given the tight completion deadline of an auction purchase, do you really trust a mortgage lender to underwrite, survey, issue an offer in sufficient time for your solicitor to do the legal work to complete in time?  You would be a brave man if you do.

Assuming that, as you’re asking the question, we can rule out your own cash as an option, let’s look at the other options:

You can use private money, but what will that cost and how reliable will they be?  I am dealing with an auction purchase right now that went down that route; two weeks after the...

THE QUESTION

I am considering buying a flat that was converted in 2008 – without planning permission.  The landlord tried to get retrospective planning permission two years after conversion (2010), but the Council rejected the application.

Now the property is up for sale and I think a bridging loan wouldn't be a problem, but a mortgage company would ultimately require an indemnity policy.  Is there a helpful solicitor willing to scan through the papers for me before I spend ludicrous amounts of money on a no-go?

THE ANSWER

Bridging finance would certainly work in terms of securing the purchase.

A mortgage lender would require a legitimate conversion, not the current illegitimate one – in other words, a Certificate of Lawfulness.

To get a mortgage you, as the new owner, will need to get planning approval (CoL) for the flat.  No planning approval = no mortgage = no way to repay the bridging loan.  An indemnity policy is a red herring.

The Council...

THE QUESTION

If I have unencumbered property, i.e. no mortgages, what creative finance schemes/packages are available for short or longer term for development projects? I really want to avoid BTL finance.

THE ANSWER

If you really want to avoid BTL finance and are fortunate enough to have an unencumbered property, you are in a very powerful position.

You can offer that property as additional security/extra collateral for any development project you want to get into.  That could mean that you need to put no actual hard cash into your project; save for survey and legal costs.

Both bridging and development finance lenders would typically lend you 70% (with slight variations) of the value of your property; as well as lending against the property you want to buy.  This is usually sufficient to borrow 100% of the purchase price plus the refurb/conversion/build costs if you need to.

For properties that fall into refurb/minor conversion category, that would generally be bridging....

THE QUESTION

I know there are limited lenders if you buy a property, refurb it and then sell it within six months, but if I pay cash for a property and want to spend about £10k max on the refurb to turn it into 4-room lets for professionals before getting some money back out and renting the property out, is this feasible?

THE ANSWER

Buying for cash if you can is positive because you have:

1. Zero borrowing costs
2. The ability to complete very quickly (which will ensure you can negotiate the price down to the best you can get the property for).

Having four tenants on separate AST's will reduce your choice of BTL lenders as some only allow a single AST let.

The majority of BTL lenders will not accept a remortgage application until you have owned the property for six months, regardless of your method of purchase. There are a couple that will lend limit lending primarily to purchase price and provable refurb spend, thus trapping perhaps more money in the property than you intend.

...

THE QUESTION

A good friend of mine has just exchanged on two properties at auction yesterday. The properties are leasehold apartments with a long term lease on them for 15 years from 2007.

He’s looking for a good mortgage broker who could provide a mortgage on the two properties that can be turned around within the auction timescales of 28 days? He can pass any credit hurdles and has financial backing, but would like to finance the majority with a mortgage.

THE ANSWER

My brokerage can obtain bridging finance from one of our lenders to enable your friend to meet the 28 day deadline. You’ll find that traditional BTL mortgages can’t fulfil the 28 day term.

To complete this purchase within the required 28 days, he will have only two ways to realistically hit that timescale, cash or bridging finance. However, he may decide that completing on the sale will only compound the problem he has created for himself.

Assuming I have correctly understood that your friend has...

THE QUESTION

I have been sourcing properties now for nearly 12 months and now I am looking to buy my first property to flip or rent, but I would like to clarify the processes I need to go through.

I am looking to buy a 3-bed terrace and split it in to two 1-bed apartments.  Can I split the title through permitted development?  What costs are there in this?

I want to use a money in/money out strategy via bridging – what is your advice?

THE ANSWER

First things first, this is not a Permitted Development deal; to convert a house to flats requires Planning Permission.  Many landlords have just gone ahead and carried out a conversion without planning approval, unaware that they have just made their property unmortgageable; no lender will give a mortgage on an illegal conversion. (This is one of the goldmine categories of unmortgageable properties that I teach investors to make outrageous offers on at my workshops, as it is cash buyer territory only.)

So the first step...