Post credit crunch property investor story

Hi Lucasz

I think you are doing incredibly well. So many people simply fail to understand that to invest you first need to have money. If you haven't built up lots of equity in your home and a good job to raise a mortgage on it there are only a few options left. Win the lottery, rob a bank, inherit your fortune or get off your backside and EARN good money. It's the fact that you did the latter, in a foreign country which is so inspiring.

Only after time and good fortune in the property markets is it possible for investments to become a business which generates its own profits for growth and eventually enough profit to sustain your lifestyle. It took me 19 years to get to that position.

The only way I could learn about property investment and being a landlord was by making mistakes. You are in the fortunate position of not having to make the same mistakes as I did as there is now so much information out there which is easily accessible that wasn't out there in the late 1980's when I got into this business.

The private bank I use is Coutts & Co. They do operate in Scotland but they are VERY selective in terms of who the open accounts for. You may wish to make it one of your goals to be invited to become a client of theirs, I did and it took me 14 years to be invited to apply. I've now been a Coutts client since 2003. As a guide, their criteria for taking on new clients these days is £5 million net worth and £500,000 liquid investable assets.

My advice to you at this stage is not to rush things and don't over-stretch yourself. By all means sell the property which is too far away to manage. Whatever else you decide to do, don't give up your day job, it's a common mistake amongst newbies who got off to a good start. With regards to the property you have purchased at auction you have several options, the main ones I will summarise as follows:-

1) Keep it mortgage free and use the sale proceeds of the property you are selling to do the next deal.

2) Use the mortgage free property to raise bridging finance if you need extra money to do another deal.

3) Use a good broker to arrange a mortgage on the new property for 75% of what you paid for it and then apply for a further advance or a remortgage based on borrowing 75% of the market value at a later date. Mortgage Trust will allow this and there are a few others too. Let me know if you would like me to introduce you to my favourite broker - email: mark@property118.com

Thanks again for sharing your story and agreeing to correspond online in open forum.

We can continue to use this thread to communicate for as long as you wish and I hope that several people will follow your progress by subscribing to this particulat thread by adding their email address in the box above (just above "Commenting Advice") and clicking the orange send button.

I hope this helps.

Regards

Mark

yes you can refinance . go direct to lenders best lender virgin buy to let 70percent loan to value on buy to let . you should refince your main property . furnace do a 95percent loan to value and you can let room tax free

Are you sure about that? My understanding was that Virgin will allow a refinance inside 6 months but will base their landing on 70% of the original purchase price as opposed to valuation? That's similar to the Mortgage Trust deal I mentioned and there are others. I advocated using a broker on the basis that it pays to choose lending based on an understanding of all available options. The cost saved in terms of hassle and quality of advice should offset the costs of using a broker. If it doesn't then it's a simple commercial decision not to use that particular broker and find a better one, is it not? I have ALWAYS used a broker, even going back to when I was a broker myself. It pays to use another professional. If you were a dentist would you drill your own teeth?

Hi Mark,

Thank you for you response.

I have contacted Coutts - to open an account a minimum of £1m in liquid assets is required - out of my reach at the moment. But hopefully I will be in a position of getting the account in a few years...;)

I did a wee research and managed to find a lender that is willing to lend 70% of the valuation if the property is purchased withing 6 months - I have scheduled a meeting with my broker for next week to discuss and apply. The lender is Clydesdale Bank...

It seems that some lenders can release ~75% of the purchase price straight away and then after 6 months remortgage based on the valuation. However the early repayment charge may apply to close the first mortgage off...my broker is going to investigate that further. Depending of the the costs and the rate of such a mortgage - it still might be worth just to wait 6 months and then have access to all lenders and possibly better rates etc...

Bridging finance is an option too, but may be very costly. I may use it as a last resort...

the current mortgage on my home ends this January - I have already started to shop around to remortgage it but I need to wait until January to avoid early repayment fees. Thank you for advice - I'll contact Virgin to see whether they have any good deals that suits me.
My main source of income comes from my own LTD company - unfortunately not all lenders are keen to lend money to LTD directors...

Is it possible that brokers have access to better mortgage deals than us, mere mortals? When I tried to approach one of the lenders and asked about the deal my broker has presented to me, I have been told that such a deal was not available...and instead they offered me higher rates + £1300 admin fee more that the broker....

Hi Lucasz

Yes, many lenders only deal with brokers, especially where they have a small tranche of money to test a new product. Some lenders prefer only to deal with brokers and offer discounted products through them as it reduces their administration. Brokers can often access deals which are far more competitive than you can access directly for these reasons. The key is to knowing which brokers get access to the best deals.

Hi,
I am truly appreciated by reading your Blog that reflects the updated things about real estate property market globally. Apart from the broad sense, you have mentioned the new and unique way of real estate property scenario that attracts more people to read your Blog. I hope you will keep continue to post the same type of informative Blog in near future with ease!

hello everyone...

I have spent a lot of time on the phone with brokers/lenders/advisers trying to find a BTL lender that could lend based on the market value withing 6 months of the purchase. There is absolutely no lender that could do this.
Some brokers said that Northern Rock was a bit relaxed on the 6-months rule, but since they are now part of the Virgin Money - I had no luck with them either.
Paragon can do this in some circumstances - and they don't lend in Scotland...

I had to revise my idea of purchasing at auction for cash, remortgaging and reinvesting.

Could you please advice me which of the 2 routes should I take? (or maybe someone have a better idea?)

OPTION 1. Get a standard BTL mortgage when purchasing the property based on 75% of the purchase price. Then remortgage after 6 months (paying the exit fee - which probably is not a good idea) or wait 2 years and then remortgage releasing the equity.
Prons: Good BTL rate (a lot of lenders to choose from) and only 25% of the purchase price is needed - hence I am able to purchase a few properties each year. Cons: unable to purchase unmortgageable properties, only 28 days to sort out the mortgage.

OPTION 2. Buy at auction for cash, wait 6 months and remortgage. If a good unmortgageable deal appears in the mean time I can always get a bridging loan on this property and remortgage it anyway after 6 months. But bridging loans may be costly...

Option 1 gives me an opportunity of purchasing a number of properties in a short time (as only 25% of the purchase price is needed), however I am a bit worried whether the BTL lenders will process the application on time (28 days after the purchase). I could try to keep cash reserves to pay the amount in full (or have an option of getting bridging loan fast) in case the lender takes its time when processing the application...
Option 2, however, gives peace of mind (no rush in getting the mortgage etc) and can release additional equity just after 6 months (when remortgaged). However I would be able to purchase only ~2 properties a year...

What are your thoughts on this?

thank you in advance
L

Hello Lucaz

You make some interesting points and I will try and reply with my thoughts in the order of your comments.

Firstly, you’re doing absolutely the right thing in taking advice from a variety of sources as it is essential to be properly informed from experienced professionals to ensure a well considered business plan – and running a property business is no different in some respects than that of running any other type of commercial venture.

Lenders provide funds based on the lower of the purchase price or reported value of the property. From your opening comments, I am assuming that your intended strategy is to buy at ‘below market value’ / discounted purchase price but to try and raise money on the perceived higher value instead? This is just not possible in today’s market as lenders fingers
have been badly burned before, during and for some time after the credit crunch and so now their criteria is so much more robust and stringent. If however I have misread this point and you just want a BTL mortgage to buy an auction property on the day of the auction, then yes, this is indeed possible as mortgages are definitely available for this purpose.

You just need to plan it all properly in advance.

You mention Scotland – is this your sole target area? Paragon is not the only BTL lender, of course and there are indeed many lenders supporting the Scottish property market.

Your point about buying at auction (for the reduced value / discounted purchase price?), remortgaging (for the ‘higher’ market value?) and then reinvesting seems to confirm my assumption above, and as mentioned this is a strategy not favoured by lenders at this time as there is no ‘pain’ money invested into the property in the first place.

Looking at your 2x options, option 1 is definitely available and with some auction catalogues coming out far longer than just 28 in advance of the auction, so plenty of time to arrange the mortgage (via a professional Broker – it’s the DIY mortgage arranging that are usually the delayed applications). There are BTL mortgages on extremely low rates, but you will be tied in for a specified period of time, and there are even some BTL mortgage deals without any
redemption penalties at all.

Your second option makes some dangerous assumptions. Firstly, not all lenders will allow you to remortgage within 6 months of purchase via a bridge deal. There are lenders who will make you wait 9, or even up to 18 months before this is allowed, so once again, working with the right professional Broker will enable you to consider and implement the right (ie most cost effective and viable) exit strategies too.

Buying ‘unmortgageable’ properties also restrict the LTV that a bridging funder would lend to. Quite often the LTV for such properties is restricted to a max of 55-60% of purchase price.

However, buying with a bridging finance fund (or a.k.a. an extremely useful financial tool for property professionals) may be perceived as ‘costly’ but this is subjective – i.e. if you lost the property opportunity (and the inherent potential equity profit) because of a few thousand pounds of fees and interest charges, then the lost gain is far more costly than the price of the bridging deal. Horses for courses though.

So, what’s ‘best’? My thoughts are;

* Work closely with one professional Broker – “too many cooks spoil the broth”, etc

* He / she will get to know you and can present you and your strategy to the ‘right’ lenders – and of course the BTL lenders in today’s marketplace are not just high street banks but a large (and growing) range of specialist lenders available via Brokers only

* With the right ‘Agreement / Decision In Principle’ (AIP) in hand, then you are ‘good for the money’ – subject to the property passing a satisfactory reported valuation from the lenders own instructed surveyor

* The AIP is your ‘money’ ready in hand for when you receive the auction catalogue and do your pre-auction due diligence on the property

If all of your boxes are ticked by the day of the auction, then you’ll have a good idea of what the ‘real’ value is and you’ll also know how high you’re prepared to bid, too, knowing that your money is ready to make that purchase via your AIP

With the right supporting Broker and lender in situ, you’ll not only have the funds available for the first purchase but the opportunity to have a credit line available for further acquisitions too.

Our Clients are testament to all of the above. We have some long standing investor and landlord Clients who work very closely with us and regularly use bridging finance and BTL mortgages to either buy and sell, or buy and keep, and with the ever changing choice of lenders, products and criteria, if your starting point is simply to follow the bullet point list above, you shouldn’t go too far wrong.

Final point, don’t forget that any type of mortgage or loan or finance deal is simply a debt, and that debts need to be repaid whatever situations may occur. And this is why I would close my thoughts by saying that you should work with an FSA authorised, qualified and
experienced financial adviser who will also provide the very necessary estate planning, life insurance and mortgage protection arrangements for you too. As a property investor and portfolio landlord myself too, I can therefore provide all of the above with some degree of experience from all sides of the fence, so I hope you find the above to be of interest.

Hope this helps.

Howard