Refurbish to let finance
Refubish to let – finance is key
‘Refurb to let’ is the latest trend in buy-to-let according to the Telegraph. Really? Is that a bit like saying black is the new brown, or brown is the new black? Did ‘refurbing’ ever go out of fashion?
My investment strategy
My strategy back in the 90’s was to buy dilapidated property on the cheap and completely refurbish it ready for letting. This way, I got a great property to let out, a premium rent, minimal rental voids and hopefully a profit on the uplift of the property’s capital value.
The secret was buying the right property at the right price and spending the right amount on the refurb to maximise profit and rental yields.
In a rising market, it was easy for some developers / landlords to convince themselves they’d done a good job on a refurbishment, when infact most of their profit had occurred thanks to a market wide increase.
For me, after factoring in market increases, refurbs paid their way and bit more, and the tenants a newly painted property attracted made for easier lets and higher rents.
However, the downside was always cash, as the recent Telegraph article goes on to point out, the problems with buying properties to refurbish is gaining the right access to finance.
Refurbishment finance issues
It is possible to get specialist refurbishment loans, where a landlord receives a percentage of the unimproved value and then an increased amount when the project is completed.
The alternative is to buy with one lender, (using a loan without any lock-ins) then hunt around for the best deal to remortgage after the property’s refurbishment has been completed. In the case of the latter, what you need is a lender that will not sting you with expensive lock-in or exit fees or initial set up fees. These will add massively to your finance costs and the overall investment costs reducing your investment returns.
The other problem is that many BTL lenders refuse to lend on properties that are uninhabitable or in poor condition. If they believe the likely rent will be low in its existing condition it might depress the size of the initial mortgage advance, making the initial investment unworkable for landlords without large amounts of cash to sustain a very low Loan To Value (LTV).
Specialist refurbishment landlord finance
There is an alternative to this convoluted route for financing properties that require light refurbishment, where no structural work is involved.
Several lenders through Property Hawk BTL Mortgages allow a borrower to finance the initial purchase and then increase the size of the loan once improvement works have been carried out.
Refurbishing can add up
If a landlord gets it right refurbishing a property to then let out can be a winner. The 10-15% profit on the Gross Development Value (GDV) can potentially equate to part, or sometimes all of the equity required in the rental property.
This means the whole investment process could be carried out without drawing on any of a landlords’ capital. This frees up cash for landlords to move on to their next refurbishment, and any subsequent capital appreciation in the value of a property can be seen as pure profit.
Is it time to get your rollers out, and start decorating, for refurbing is back in fashion, don’t you know?
Let’s hope for the continuation of the rising housing market. We all could be ‘quids in.’
For full details of these refurbishment products and other options contact: