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...

THE QUESTION

What is the best way of purchasing an auction property and then refinancing it after the refurb work has been done?

The guide price is 200k, but this property has the potential to become eight self-contained units generating £400 pm cash flow each after a bit of work (£15-25k).  I have about 25k for deposit and a partner who would potentially put in the same, but was wondering the best way to go about doing this.

Could I use a commercial mortgage for the refinance?

THE ANSWER

I have financed plenty of these types of deal, this may help you:

1. Auction purchases are realistically funded with cash or bridging finance due to the restricted timeframe the auctioneer’s terms give you to complete the purchase, usually 28 days. Trying to complete with a mortgage, particularly a commercial mortgage, will end in only one way; you’ll lose your 10% deposit for failing to complete in time
2. For the refinance, commercial lenders lend to experienced landlords...

THE QUESTION

I've had an offer of £87,000 accepted on a property that, once it's had a light refurb, should be valued at £120,000.  Following the mortgage valuation the mortgage company have come back to me and said they are holding a full retention until the kitchen and bathroom have been replaced, but they really aren't that bad.  I've seen much worse and had mortgages for much worse in the past.  How can I get round this?

THE ANSWER

It looks like you have fallen foul of the differing definition of mortgageable that applies to main res or BTL properties. Lots of investors fall for that one too.

Because it has a kitchen and bathroom of sorts, you believe it to be habitable and thus mortgageable and you would be right if it was your main residence you were looking to mortgage.

However, for an investment property that will be let out a different level of habitability is required – it has to be rentable, not just habitable.  In other words, the...

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 am aiming to buy a freehold BTL property that has three separate flats.   I am unable to find a mortgage provider who will give a mortgage on this type of property.  I was advised that I must have three separate leases in order to get a mortgage.

How can I get a mortgage on this property?

THE ANSWER

It’s no surprise that you are having trouble finding a lender for this; BTL lenders have a very 'vanilla' approach to what they want to lend on.  This is based on their view of the worst case scenario i.e. how easily could they dispose of it if they had to repossess it?  They look for properties with broad market appeal.  Mostly, if it is not a regular freehold house let on a single AST, they start to put up the barriers.

These ‘unmarketable’ properties include:

• Non-standard construction
• Flats above commercial units
• Flats in high rise blocks
• Properties let by the room and many other quirky features
• Houses divided...

THE QUESTION

The lender I’m with has revised their lending criteria to exclude the mortgage I have had with them and I’ve reached the end of term and need to remortgage.

The property is a studio flat with 63 years lease remaining, value £65k with 40k outstanding, but it is less than 30sq m.

What do you recommend?

THE ANSWER

You have two problems..

• A small space
• A short lease (at least in mortgage terms)

The majority of lenders set 30sq m as their minimum space threshold based on their belief that the marketability diminishes significantly below that figure i.e. it is so small it turns off potential buyers.  However, there is not much you can do to increase its size.

Lenders get very jittery about short leases (anything less than 75 years), also due to the reduced marketability.  In a stagnant market, the flat will decline in value as each year ticks down until the lease expires.  Typically they can require anything from 25 to 45 years...

THE QUESTION

I am pretty new to this, I have found a few BMV properties, one is a 3-bed semi property that will sell for maybe £65k, needs a full refurb, market value on the street is approximately £145k.  I don’t have much in the way of funds to put into this, what would the best option be?

THE ANSWER

The generic answer to your question would be delayed completion bridging, as long as the house was vacant.  This enables you to borrow against the £145k post refurb value, not the £65k purchase price to complete the purchase,

Here's how it works:

1. Negotiate with the vendor to exchange contracts quickly, so they are reassured that it is sold.
2. That negotiation should include getting the keys on exchange, not on completion as is normal, so you get access to the property.
3. That negotiation must also include delaying the completion until the refurb is complete.
4. Get agreement to lend from a bridger that will lend on the post refurb price, whilst...

THE QUESTION

Do you know any lenders who are willing to lend straight away? I’ve been trying to purchase a second property and they all say I have to wait six months before I can take out a BTL mortgage.

THE ANSWER

If you have bought a property for cash and are now seeking a mortgage to recycle your cash into your next deal, almost every BTL lender will impose a 6 month ownership restriction before they will accept an application for a remortgage.

You may wonder why; it’s because they have an objective which is diametrically opposed to yours.  You want to get your cash out, they want you to keep it in, as they see you taking your cash out as a threat to the security of their money sitting in your property.

If you want access to the full range of BTL mortgages and the low rates that they offer, you have to wait 6 months and there is no other way to achieve access to them.

A very limited number of BTL lenders will accept remortgage applications within the first 6...

THE QUESTION

How can I purchase a property, refurb and refinance to extract most of my money WITHIN 6 months please? I can buy cash if that helps to start with.

THE ANSWER

Almost every BTL lender uses a 6 month ownership restriction specifically designed to stop you from doing what you want to do, as they view it as increasing their security risk. They feel safe when they have your cash, or at least 25% of it, invested in the property.

There are a very limited number of BTL lenders that allow you to apply within 6 months of purchase, but their lending is based on the purchase price.

One or two may allow extra borrowing on the money you can prove you spent on the refurb, rarely on the new market value you have created. So, if you are lucky, you might get a mortgage of 75% of purchase price plus 75% of refurb costs. Hardly getting most of your money out.

If you can buy cash you should do, as you will have zero borrowing costs, until you refinance.  The other advantage of buying...

HMOs are a typical point where a clash of opinions occurs.

HMOs get valued as commercial properties, but HMOs converted from what was an ordinary residential property, rather than a commercial to residential conversion such as a pub or offices are NOT a commercial property, but a residential property temporarily being used for a commercial purpose.

These are the main differences between actual commercial properties and residential properties converted to HMO.