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) opportunities…

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…

Unfortunately, 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?

Of 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 margins!

Doing 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!

Now I could just sit here and whinge about the lack of suitable finance. But instead, I’ve decided to do something about it!

Regular 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.

That’s why we’re really excited to launch our finance service from with a new type of funding product...

Our 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.

So how does this product work in the real world?

As 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!

Why? 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: http://bit.ly/ujLNd

Following 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.

The 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.

The 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 possible.

Rolling interest payments

To 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!

Once 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 project!

A real world example…

A friend of mine recently took advantage of this new mortgage product for a property he intended to refurbish and sell on.

He 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! He 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.

My 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:

As 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!

Exclusive refurbishment product

This 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…

With 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%.

The importance of not over stretching yourself

The 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.

If 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

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