Specialist Finance to Help in the Distressed and Refurbishment Business
Buying a wreck, doing it up, and selling it on at a big profit is the property developer's dream. Or keeping it and using it within your buy to let portfolio is another option. It has a different strategy and different tax implications, but both work well for the investor. Within today's market, there are many amateurs trying this approach. The increased number of TV shows has instilled that estate agents and auctioneers houses can sell these establishments quite quickly. In fact, they often now use the immortal words, "In need of modernisation" as a hook for the amateur. What this has done has made the sourcing of these properties more refined, made the numbers more important, and made the margins tighter.
Within the financing of these properties there has, however, been further growth in certain finance houses in developing packages that enable and help the investors get into and succeed in these markets. Most lenders will traditionally not look at a property without a working bathroom or kitchen, and unfortunately this does not constitute a gas stove and a bucket! So who can help?
Ecology, Norwich and Peterborough, and more commonly Buildstore are three such institutions that offer loans to help individuals buy wrecks and then provide the finances to pay for their refurbishments. With each deal you will often need an outline, if not full planning permission and a full schedule that will make the home habitable within two years. The amount that you can borrow will depend on your income in the ordinary way, as well as the current and future value of the property.
Buildstore for example will lend up to 95 percent of the original purchase price for the purchase. Then they will lend up to 85 percent of the final expected price, releasing these funds before each stage of the refurbishment to aid the cash flow. A recent example of this was on a distressed property in Kingston upon Thames that was purchased at £321,000; an initial requirement of £16,050 plus costs was therefore required. It was expected that the refurbishment would cost around £50,000 for the property which would then revalue up at £450,000 once completed. Buildstore therefore provided a further £77,550 in potential funds to complete the renovation. The final result after five months was actually a refurbishment of £54,320, but a revaluation of £550,000. Naturally, the movement in the market during that period accounted for some of the revaluation, but the business lesson here is that with specialised lenders it is possible to purchase cash flow and complete profitable renovations with a minimum amount of seed capital required.
Rates are not the most competitive in the market place with these lenders, but that is natural given the risk element that they are undergoing, as they provide a facility that others do not. Then once the refurbishment is completed, it is simple enough to refinance again if required.
Remember that at the beginning of the article we discussed that often different strategies are available. Finally we would like to draw your attention to a new product in the market. A specialist broker has begun offering a deal for buy-to-let owners. You are required to make the property habitable within three months, but you can borrow up to 85 percent of the purchase price, then a normal 85 percent buy-to-let mortgage thereafter. |
