Why Invest In Property?

This is the basic that most people know about, but there are several innovative finance options that add a different dimension and make this a whole load more exciting.  In the simplest form. you look for a property that is Below Market Value, you buy it, refurbish it and resell for a prophet.  This needs to be done through a Limited Company to make it tax efficient and the other main things to watch out for is Stamp Duty.  An example set of realistic figures; Purchase Price £120k (perhaps at auction), Stamp and Legals £20k, Renovation cost £30k, Resale Price £220k, Profit £50k before tax (remember Limited Company).  So in this example, you need £170k to invest if you want to do it for cash.  But why tie up your own money?  The simplest option is Bridging Finance.  For this option you would need a deposit of around 30%, so around £50k in this case and you would borrow the remaining £120k.  Yes, you can borrow the money for the refurbishment.  Bridging Loans can be expensive so you need to have all your finance in place and builders ready to go.  The quicker you complete the project and repay the loan, the less interest you pay.  

The basic principles are similar to the Simple Flip example above but the focus is on the end result, which has 2 aims:  Increase Property Value and Maximise Rental Income.  There are 2 main strategies for buying BTL properties.  In the simplest form, you buy the property for cash, renovate it to Add Value, then Mortgage the property at 75% LTV taking as much of the cash out as possible.  If this is done well you can get all of your money out.  The alternative is to use a Mortgage straight away to buy the property.  The disadvantage of this is that you have to wait until you re-mortgage to take the added value cash back out of the property.  The way around this is to buy the property on a Bridging Loan, do the renovation work then transfer to a BTL Mortgage at the new improved value.  This is the strategy we have employed with Melrose Road in Yeovil.  

I wanted to provide some detail on this process because it is a great strategy for the Somerset Area at the moment.  In towns like Yeovil and Bridgwater, rental accommodation is in very high demand and Houses of Multiple Occupation (HMO) are thriving.  The concept of converting a suitable property into an HMO is relatively simple and the same basic principles of Increase Property Value and Maximise Rental Income apply.  The great thing with HMOs is that you can get a Commercial Valuation based on the rental income the property will achieve.  There are several innovative finance options available but the one we have chosen for Taunton Road in Bridgwater is a Bridging Loan with additional borrowing to cover the development cost, all based on the Commercial Value at the end of the project.  This option really makes your money work for you but requires a bit of work up front.  The lender requires a fully costed scheme of work and prefers an established building company to carry out the work (we are using a local company who offer a full turn key HMO conversion service) and they also want to see some evidence that the borrow has experience of property investment.  Your finance Broker is an essential piece in this jigsaw.