THE QUESTION

 I am looking at a mixed use building currently fully let.  It consists of:

• Ground floor let to a barbershop at £300PCM
• 3-bed flat above (over 2 floors) let at £495PCM

My question is:

• How would you put an indicative value on this type of unit when making an offer? It currently has a guide price of £96k and is going to auction, but didn’t sell at last auction (not sure if it didn’t meet guide or reserve)
• How willing are commercial lenders on financing such a property?

THE ANSWER

• Properties like this are based on a multiple of the rental income and that is influenced by based on the quality of the tenant and strength of the lease. i.e. a Tesco Express on a 20 year lease would value significantly higher than a barber on ‘whatever length’ lease.

So you have an annual rental income of £9,540. The guide price is therefore based on 10 x income and that is not unrealistic for this type of property.  If it...

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...

THE QUESTION

I’m looking for finance to buy a small B&B, what do you recommend?

THE ANSWER

Small B&Bs tend to be problematic to finance.  This is usually because the owners have a narrow view (encouraged by their accountant) of the property’s value based on keeping the taxable profits of the business down to a minimal level.

Of course they benefit by pocketing almost all of the turnover for a number of years, but it bites them in the bum when they come to sell it!

First thing any lender we/you approach wants to see the latest three year’s accounts and, of course, they are rubbish showing the business hardly makes a profit (on paper).  Thus you either get declined for a mortgage completely or get offered a ridiculously low loan-to-value.  As a result purchasing this type of business tends to require all or mostly all cash because banks won’t lend on them.

It is possible that you have found one of the minority of savvy B&B owners that...

THE QUESTION

I’ve found a shop currently let at £350 pm with a separate flat above currently vacant, but will bring £300-350.  The asking price is £69k and, although I've had £60k rejected, they'll take £65k.

Firstly is this a good deal? What will it cost me to buy it with commercial finance? What should I expect to pay in monthly payments and are there any fees other than what you would normally have with residential?

THE ANSWER

It’s highly unlikely to get a commercial mortgage at a decent loan-to-value to fund the purchase given that the property is only partially let.  Commercial lenders’ primary concern is how the monthly payment is afforded from day one and you are 50% down on full rental income.

The other issue is that £65k is below most commercial lenders minimum loan of £75k.

Here are some things to consider:

• Is it possible to rent the flat out by the room to increase rental income?
• What business is...

THE QUESTION

I have found a high street property with great fundamentals and a very healthy rental yield.

It is in a very impressive listed (grade 2) building with 10 flats.   On the ground floor are two commercial properties - a Sainsbury’s local and a major bank.

The flat I am looking at is on the third floor of this building with windows facing onto the high street (double glazing in the bedroom).

Should I be concerned about being above commercial in this situation?  Obviously being right in the centre of town provides good fundamentals, but is there likely to be a problem being above these commercial businesses?

My strategy is long term - however I obviously am looking at potential sale in future and don't want to limit my market.

THE ANSWER

It is impossible not to limit your options on this property. A significant number of BTL lenders will decline to lend on flats above commercial.   This is simply because, as always, they have the end game in mind;...

THE QUESTION

I'm looking at a HMO for my next project but would like to put this one into a new limited company. How easy\difficult is to get a mortgage on a limited company without any trading history

What are the perils and pitfalls of using brand new limited companies for lending? Is it possible?

THE ANSWER

Mainstream BTL lenders do not lend to limited companies or SPVs regardless of how young or old they are. If you want a 'vanilla' BTL mortgage you have to apply as an individual.

If you want to borrow in the name of a limited company, then you will need to go to commercial lenders, or what I would refer to as specialist lenders; those on the periphery of BTL lending.

Trading history, accounts etc. are less relevant if the property you are putting up as security has a provable, consistent income that reassures the lender that you have the ability to service the mortgage payments. So, if you can show a fully let property, with ASTs as the proof of...