Financing multiple cheap BTL without huge mortgage fees ?

[Talay]

Just before the main credit crunch hit home I was working on a business plan with a couple of friends which in simple terms worked like this:

Buy cheap rental properties in selective areas, potentially from distressed owners, standard moderate refurbish and rent to colleges for nursing / medical students / fully qualified etc.

The financing was one of three ways.

1) Use cash at hand for all costs and then mortgage to release most if not all the original capital.

2) As 1) but drawing down on credit line obtained at bank.

3) Use mortgage to purchase and remortgage after.

Obviously number 3 looks out of the window as the fees are so large. Paying X thousand for a short term deal or on a cheap property is not viable.

Option 1 and 2 are on the table.

The problem comes with getting the capital back out in these straightened times. All the BTL stuff I've seen with a cursory look seems to have huge fees attached and that doesn't work for low cost housing.

Any ideas on other long term funding for BTL over multiple units ?

[SXGuy]

Re: Financing multiple cheap BTL without huge mortgage fees ?

I have a really nice mortgage broker i can pass a number to you if you wish, pm me for details.

You can be frank with him, say what you like, he gives straight up honest advice.

[Talay]

Re: Financing multiple cheap BTL without huge mortgage fees ?

I have a really nice mortgage broker i can pass a number to you if you wish, pm me for details.

You can be frank with him, say what you like, he gives straight up honest advice.

Thanks.

[PlanB]

Re: Financing multiple cheap BTL without huge mortgage fees ?

This all depends on whether your business plan is to generate maximum income now or capital appreciation in the long term. Since all the interest paid on borrowing (mortgage and any overdraft or loan) to both purchase and refurbish the properties is offset against the rent for tax purposes it makes financial sense to borrow as much as you can to keep your tax bill minimal. But the reverse is true if you want/need to bank the rent (and pay tax on it!).

In my experience buying with a mortgage and then going for a further advance with the same lender once the upgrade work has been completed avoids the constant fees associated with remortgages including obscene broker fees. However everything is negotiable these days so I would remind a broker that since he also gets paid commission by the lender where he places your business you will offer less then he/she is asking. There's not a lot of business about for brokers at the moment so they need all the clients they can get their hands on. I saved fees by going direct to the lender each time because they use inhouse surveyors/valuers and inhouse legals sometimes too.

One important thing to beware of is that Buy-to-Let mortgages are not regulated by the FSA. This means that if you fall behind with your payments you don't get repossessed in the traditional sense you get the property taken into receivership by the lender and that's the end of it. There is no court hearing and you have no opportunity to defend your position once only two payments have been missed under the Law & Property Act 1925. If you've got tenants in the property at the time their rent gets redirected to the lender until the property is sold

Buy-to-Let is not for the faint hearted !

[PlanB]

Re: Financing multiple cheap BTL without huge mortgage fees ?

Any ideas on other long term funding for BTL over multiple units ?

Have you considered portfolio lending? This is where the lender advances you money against multiple properties and you can then draw down a further advance against the combined value of all of them. In other words they may lend up to 75% LTV across all of your properties instead of you remortgaging each one on a stand alone basis with all the associated costs. I believe The Mortgage Works (part of the Nationwide) is still doing this and others too Most are now limiting their exposure to a maximum of 10 properties whereas at the height of the boom it was 100

[PlanB]

Re: Financing multiple cheap BTL without huge mortgage fees ?

Just before the main credit crunch hit home I was working on a business plan with a couple of friends . . . . Any ideas on other long term funding for BTL over multiple units ?

Maybe you should also check out the advantages (and disadvantages) of doing this as a limited company. Your decision will depend on what you and your friends do to earn money in your 'other life' or whether this venture is intended as a full on business arrangement between you all. My accountant gave me good advice when I started out which was "always have an exit strategy". I think he was meaning Capital Gains Tax which varies for individuals and companies. I hope this helps.

[mgfboy]

Re: Financing multiple cheap BTL without huge mortgage fees ?

This is not a easy question and I've had a few of my clients ask the same.

You have to take into account all parties attitude to risk, weather capital or income growth is important and their own situation. To do the job properly takes time.

Don't rush into anything and make sure you have a good solicitor to draw up the agreements between the parties.

As for fee's nothing in life is free, if I was doing this I would charge a fee but then rebate it against any prop fee I received. The fees charged by the lenders vary and there is not much you can do about them, it's the brokers job to find the best product for the cleint and that included the overall fee's charged.