Property Trading – Financing for the first time

by Readers Question

12:19 PM, 10th October 2016
About 2 years ago

Property Trading – Financing for the first time

Make Text Bigger
Property Trading – Financing for the first time

There are a couple of old threads (a few years old) on this already but welcome people views / ideas / help as things in the world have changed since then!tips

I am pretty new to the property world and currently I have one BTL property with an okay return at 7.1%. I have got the bug and would really like to venture into Buy to Sell alongside my current BTL. I have made a declaration of trust (using recommendation from this site) with my wife so the tax side on the BTL is in hand.

Option 1:

1) Remortgage own property and release £25k for conversion of property (have over £175k equity currently – unfortunately not enough equity in BTL). I have an eye on a property at auction which already has PP to convert a building to a 2 bedroom house (detached). I have a number of good contacts with a variety of trades so sorted on that front.

2) Bridging loan for remainder, sell for a profit (reckoning £40k, obviously depending on what it sells at auction for and contingencny fund)

Option 2:

1) Remortgage own property and release £100k for conversion of property (to reduce amount borrowed on bridging loan).

2) Bridging loan for remainder. Sell for profit!

Option 2 appeals a little more as the costs of bridging will be less = more profit. However, it worries me slightly by increasing the mortgage on own property and would I be able to pay back the monies once I’ve sold the converted property (unlimited overpayments on mortgage) or will the bank be a bit miffed and potentially blacklist me for future borrowing?

Do I form a company or not for my first one?

I’ve got to the point I really want to do this, have wanted to do this for almost 20 years and more importantly have the full backing of my wife. I need to just bite the bullet; I know there are a lot of very successful traders / developers out there and I would really welcome any advice about potential pitfalls, opinions and recommendations before I take the plunge.

Thanks for taking your own time to read this and hopefully give me some tips to start my journey!

Mark



Comments

Neil Patterson

12:27 PM, 10th October 2016
About 2 years ago

Hi Mark,

First of all the easy question. As long as you are upfront with your residential mortgage provider with what you are using the funds for and you keep up your mortgage payments there is no reason for you to be black listed.

I can't really give specific advice as you would really need to complete a full fact find of all your circumstances with a qualified Broker. However, my gut feeling is you should look to see how much you can raise as a maximum on a specific project with a commercial bridging lender first and work backwards with how much money you may need to raise on your residential property without leaving yourself short for cash flow (it will nearly always cost more than you think). Also take into consideration any early redemption penalties.

Apart from the extra interest payments a lot of the costs are in setting up the bridging finance in the first place.

It may help to see our page on the subject and we have contact details on there if and when you need help. See >> http://www.property118.com/bridging-finance-recent-examples/

And >> http://www.property118.com/property-development-finance-recent-examples/

Also most people would set this up and finance under a Limited company but again you would need specific qualified accountants advice.

Michael Barnes

11:01 AM, 11th October 2016
About 2 years ago

As Neil says, talk to your mortgage company about your plans for borrowing and repayment. They can tell you exactly what the position would be.

If you plan on going into a property refurbishment business, then you may be better off keeping the loan for buying subsequent properties rather than paying it off: use profit plus mortgage for next property, reducing bridging costs.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

And the landlord vote goes to - ?

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More