Over the last couple of years, BTL investors have found
that short-term refurbishment loans have all but dried
up. Now, the finance drought looks set to end as a revolutionary
new funding product helps BTL investors to once again
finance perfectly profitable BTL and BTS (buy to sell)
If you’re a buy to let property investor, you’ll
no doubt have noticed that finance isn’t as easy
to come by as it once was. As a result, if you’re
anything like me, you’ll have found the lack of
finance for properties in need of refurbishment a little
frustrating to say the least! This lack of funding means
that we sometimes have to miss out on some perfectly
viable – and profitable – refurb deals…
the majority of lenders will only release mortgage funds
once a property is in a condition to be let. So even
when I’ve been lucky enough to find a lender that’s
willing to part with some cash, they are rarely willing
to cater for projects involving anything more than very
modest refurbishment work.
Is Bridging Finance a realistic alternative?
course, we can go down the bridging finance route. However,
I’ve found that if the property I’m renovating
is not a traditional house or flat, then it’s
a real struggle to source realistic finance options.
Short-term lenders seem pretty reluctant to lend if
there is not a guaranteed option for longer-term funding
– especially if you want to keep the property
as an investment. Plus, the majority of bridging lenders
are reluctant to lend to limited companies. Worse still,
typical bridging finance costs are around 1.5% per month
– in addition to sizeable entry and exit fees
of 1.5% to 2% on average. It all adds up to a hefty
price tag which takes a huge chunk out of our profit
something about the poor state of BTL development finance…
So as you can see, funding options for BTL investors
aren’t that great right now. Some BTL investors
I know have missed out on some great opportunities altogether
or have been forced to purchase and refurbish properties
using their own savings. Even then, they’ve to
wait a full six months before lenders will grant a mortgage
to refinance the property away from the bridging company.
Talk about a bum deal!
I could just sit here and whinge about the lack of suitable
finance. But instead, I’ve decided to do something
readers will know that I help my brothers, Johnny and
Glenn, to run a specialist online land agency - LandLounge.com.
As part of that venture, we’ve decided to grab
the bull by the horns, tap into our wide network of
specialist property financiers and launch our very own
specialist development finance service… a service
that not only caters for property developers but also
the needs of serious BTL and BTS investors.
If the banks don’t fully understand the value
of refurbishment projects, then we certainly do! As
a result, we’re in a much better position to judge
the viability of projects and are able to help our investors
get their projects off the ground.
why we’re really excited to launch our finance
service from with a new type of funding product...
buy-to-refurbish mortgage enables you to acquire an
investment property that needs refurbishment, while
offering you the flexibility to keep the property as
an investment thereafter. In this instance the refurbishment
profit stays in the deal as equity.
how does this product work in the real world?
you know, finance products can be a little complex –
packed with small print and almost impossible to understand!
To avoid this headache, we’ve tried to make this
product as simple as possible, so you’ll be pleased
to hear that it is actually pretty straightforward…
First, you source a property! Then you need to perform
thorough due diligence – this is crucial!
Well, your due diligence should clearly demonstrate
that the property has the potential to offer a significant
profit following refurbishment. There are loads of these
properties right across the country… you can read
about one I bought at auction last year on my blog:
agreement of a deal with the vendor, make an application
for funding with LandLounge.com. We’re able to
fund up to 70% of your refurbishment project with low
monthly interest and no exit fee.
Following receipt of a decision “in principle”,
a valuation of the property will be instructed. This
offers an assessment of the property value both before
and after the refurbishment. It will outline the necessary
works to be carried out and the likely costs.
valuation has a dual purpose: to give both you and the
lender the assurance that the development project is
likely to be a viable investment for both parties.
next stage will be for you to acquire the property and
pay your deposit (which can be anything from 30% to
50% depending on the deal). You’ll then carry
out the necessary refurbishment works as quickly as
offer you the kind of flexibility you need when undertaking
a BTL refurbishment project, interest payments are rolled
so you don’t have to cover these each month. Once
the refurbishment work is complete the property is then
revisited by the surveyor and the loan transferred to
a buy to let mortgage facility – simple as that!
complete – and provided you’ve done your
sums correctly – you should be left with a hefty
chunk of equity in the property. Thereby allowing you
to retrieve most – if not all – of the investment
you sank into the deal, which you can use for your next
real world example…
friend of mine recently took advantage of this new mortgage
product for a property he intended to refurbish and
sourced a very beautiful but somewhat forlorn detached
house. It had great potential, but was run down and
had fallen into a state of disrepair. The property had
been on the market for some time. It was clear that
the house’s poor state was putting off potential
purchasers. However, as with all keen BTL investors,
my friend could see beyond the property’s current
state and knows a good opportunity when he sees one!
was of the opinion that although the condition of the
property was clearly poor, much of the work would be
fairly easy to arrange. In fact it was a fairly typical
refurbishment project – with the exception of
new windows, the majority of the work required was internal:
a new kitchen, a new bathroom, an additional en-suite
bathroom to the main bedroom, re-wiring, new internal
joinery (doors, skirts, architraves) and a re-skim of
the walls. My friend is something of a dust muncher!
So, he decided to get stuck in and took on some of the
work himself. As a result, he saved himself a few thousand
pounds. For this project, the total refurbishment costs
came to £30,000.
friend managed to secure the property for a superb £140,000!
Not bad, considering that it was on the market initially
for £220,000. Better still, valuation after refurbishment
was put at £300,000. Following refurbishment,
he sold the property within four months for £275,000.
So how did the project pan-out in terms of costs?
My friend’s project broke down as follows:
Finance cost: £16,930
Sales Price: £275,000
you can see, this rather typical refurbishment deal
turned out to be a very profitable deal – £88k
in just 7 months is certainly nothing to sniff at! As
I said, my friend decided to sell the property on at
this point to enjoy the generous profit (I don’t
blame him!). However, had he decided to keep hold of
it, he would’ve found the flexibility of our finance
product really useful. As it has been designed with
just this kind of refurbishment project in mind, he
would have been able to convert his short-term loan
into a BTL mortgage quickly and easily!
new refurbishment product, described above, has been
specially designed for properties valued in excess of
£200,000. This is fine for many properties, but
obviously excludes a great number of more modest opportunities…
this in mind, we’ve also introduced an exclusive
product that enables you to buy and refurbish cheaper
opportunities up to a maximum value of £250,000.
We have opened this facility up to part-completed new
build development sites as there are still quite a few
of these up and down the country which can offer significant
profits for the canny developer. Maximum loan-to-value
for this product is 50%.
importance of not over stretching yourself
recent downturn, and its obvious impact on development
finance, has been devastating. Yet, I also believe it
has delivered a major benefit: the current situation
really makes you look hard at each deal, ensuring that
it really works. Furthermore, the reduction of loan-to-value
ratios means you generally have to input some of your
own cash, which again sharpens the mind and allows you
more room to manoeuvre should something unforeseen happen,
such as a sluggish sale or a longer refurbishment. Another
advantage is that there’s never been a better
time to grab yourself a property bargain! And I really
hope that our new finance service will help you to take
advantage of the many and varied opportunities which
are out there.
you’ve got a refurbishment or new build project
in mind and would like to find out how we can help you
fund it, visit LandLounge.com or give us call to talk
it through on 0845 371 2557.
Author Bio - Lyndon Forshaw has
been actively involved in property for over 15 years.
He's built a wealth of experience in all sectors: from
a buy-to-let portfolio of over 80 properties to new
build developing, plus renovations, commercial site
finding and land trading. He is involved in several
property ventures such as LandLounge.com, Hamilton Black
Development Ltd, Forshaw Land & Planning Ltd and
Primo Developments Ltd. He also acts as a consultant
and is dedicated to helping people find financial freedom
through property via his website www.ukpropertyexpert.com
to learn how to earn FIVE and SIX figure profits from
a plot of land - without buying or owning an inch of