Buy to Let Bungalow purchase requiring a light refurb

Hi Paul

This is the type of property deal / transaction that we (ie H D Consultants) are very experienced in.

In fact, we have just such true examples published on our website in our case studies page.

Your current 'experienced landlord' position is definitely in your favour as is your credit and income status however yes, you're right that traditional BTL deals would not work for this type of deal because, as it says 'on the tin', those mortgage products are for you to buy and then let (immediately) the property to someone who can move in and use all normal facilities and utilities straight away.

So, there are the light refurb deals and there are bridge-to-let deals and this then opens up a minefield, unless you know (as we do) which lenders take a real world view on swift bridging, refurbing and BTL remortgaging cases.

For example, to highlight one of the case studies mentioned on our website;

Case study 3: Short term lending - requirement to fund a property in need of refurbishment

Finance required for a renovation property purchase price of £65,250.

After works value approx £115,000 to £125,000.

Cost of works approx £10,000 renovation timescale 4 to 6 weeks”.

The Plan was to secure funding for 70% of the purchase price with the choice to either re-finance straight away (ie without the usual 6 month restriction) at 70% of the new Loan to Value or sell without penalty which would then realise the profit.

The deal found:

Interest Rates = 0.69% per month for the first 6 weeks then 4.7% plus Libor for the Buy to Let term facility.

Fees – 1.95% lenders arrangement fee for the purchase, then just 1% to switch onto the Buy to Let term facility.

There is no exit fee for the initial finance which was used to purchase the property. When the finance is switched to the agreed Buy to Let facility only from then onwards is there an early repayment charge of 3%

Summary

Original purchase price = £65,250 (inc deposit invested) + £10,000 (for works) = £75,250

New value = £120,000

Therefore, £120,000 – £75,250 – £5k underlying costs = £39,750 Gross achieved profit (in addition to full rebate of the £29,575 of initial personal outlay)

All this was achieved in 6 weeks.

Hope this helps to clarify that there are products and services available although specific financing solutions can only be formally recommended following a full Fact Find process in the first place with a true 'whole of market' Adviser who can access all types of finance from not only the traditional BTL lenders but all specialist and commercial mortgage lenders as well.

And for that, as Mark recommends, as we do too, you should speak with a professional financial Adviser who is a Full Member of the NACFB (and I would also add the Association of Bridging Professionals, too).

Hi Paul,

Just curious, what part of the country can you do a kitchen, bathroom, double glazing and a redec for £5 k

I'm assuming you'll also need carpets and curtains to let the property. Don't think you will have much change from £15k, maybe more if the builders find any dramas. Add in your own time to PM this and you are bumping up against the open market value in terms of cost.

Taking the long view in this ?

Reply to the comment left by "John Daley" at "20/01/2014 - 11:21":

Top comment, I am continually amazed how cheaply people claim their
refurb costs are. I.E. on homes under the hammer etc.
i always worked on labour costs being 2x material costs. So a 5k refurb
suggests materials costing £1650!?

Maybe I am just an idiot and have been totally overpaying for
past 25 years..?

Reply to the comment left by "mark standley" at "20/01/2014 - 12:01":

My budget is circa £3.5k for a kitchen, £2 to £2.5k for a bathroom and £1,500 to £2,000 for decorating. How does that compare? I'm in Norfolk by the way.
.

Reply to the comment left by "Mark Alexander" at "20/01/2014 - 12:17":

Hi Mark,

So you are at £8k plus windows and interiors, labour is cheap where you are. So we're back to pushing £15k

Reply to the comment left by "John Daley" at "20/01/2014 - 13:35":

Yes I reckon on £15k to £20k for a full refurb, especially if that includes new electrics.
.

I recently paid £11.5k for new kitchen, bathroom, a couple of radiators, a couple of replacement windows, decorating 2 rooms and some landscaping. Guess that's a light refurb?

I think we are getting a bit off message here, the question was about finance. Personaly I would go for a standard buy to let mortgage and pay cash for the refurb. You should be able to get 75% of the purchase price based or a rental 'as is' as the purchase price is so low there will be no issues with rental cover even if the rental valuation is say £400 due to the required refurb.
Keep an eye open for the fees however, remember that it's not just the headline rate but the arrangment fees which soon add up, plus the rate you will go onto at the end of the term, because if that is the lenders svr, it could be anything and if you want to lock into a fixed rate in a couple of years time you will be faced with yet another set of arrangment fees.

I have to say I disagree with Sue. The question here is not how to finance this but whether it is worth doing in the first place. PRS letting is a business not a hobby and if you can't make a return and offer a reasonable letting service then you should not be doing it.

To be honest one of the key problems in the sector are the legions of landlords who watch a TV show, think I can do that, just about manage to finance a purchase and then want to see every penny of the rent in their pockets. They then whine when the bills need paying and the maintenance is due to be done.

Reply to the comment left by "John Daley" at "21/01/2014 - 10:43":

I have re-read the question - and it is "how should I finance", not "is it worth doing."

Slightly offended that you seem to think I am one of the whining wanabe landlords.....