Tag Archives: property portfolio

Which Commercial lenders are hungry for business? Commercial Finance, Landlord News, Latest Articles, Property News

Did you know that commercial lenders have three main categories of manager called Hunters, Farmers and Retailers?

This is very relevant if your business is dependent upon knowing which commercial lenders are hungry for business. Before I explain, please allow me to introduce myself. My name is Cliff Verrill, I’m a commercial finance broker and previously worked with Mark Alexander (founder of Property118.com) when he ran The Money Centre. We have remained very good friends.

I’m a member of the National Association of Commercial Finance Brokers (NACFB) and my current firm are sponsors of Property118, having supported the community with over £20,000 of investment in 2013 alone. You can read more about me on my Member Profile.

Now back to my explanation …… Continue reading Which Commercial lenders are hungry for business?


Barry’s story – it could have been you! Financial Advice, Landlord News, Latest Articles, Property News

Barry’s story was written by the Mark Alexander back in December 2010. It has since been updated and re-published several times. The dates, times and people are fictional but the story is based on real life events.

It’s a modern update of the classic “A Widow’s story”, this time written as a cautionary tale for landlords and their families.

Barry is 53 years old and married to Sharon. They have three teenage children; twin girls aged 15 and a 13 year old son. Barry worked as a self employed salesman in the plant hire business. Sharon had a part time secretarial job in a local school.

Barry and Sharon purchased their first investment property in 1996.

As property values have risen they have continuously remortgaged and used a proportion of the equity released as deposits to purchase additional rental properties. They also saved a proportion of the equity released for a rainy day. To accelerate the growth of their portfolio Barry and Sharon raised extra cash for deposits by remortgaging their home. The profits from Barry’s plant hire business covered the family’s commitments comfortably.

They had accumulated a portfolio of 23 properties with a combined valuation of £1,650,000, against which they had mortgages of £1,400,000.  The portfolio produces rental income of £87,000 per annum. Their rainy day fund amounted to just over £64,000. By having all of the above in place you might be forgiven for thinking that they had set themselves up with a very safe future.

On Sunday 21st December Barry had a bad day. He was on the way home that evening having just been out to fix a tenants leaking shower tray when the traffic on the M6 came to a grinding halt. Barry managed to stop his car, avoiding the lorry in front of him, but the car behind him ploughed into the back of him, wedging his car under the back of the lorry.

The emergency services managed to free Barry from the wreck and his only damage was shock, whiplash and major bruising to his legs. However, two days later Barry collapsed whilst out shopping for last minute Christmas presents. He was rushed to hospital where it was discovered that a blood clot in Barry’s leg had passed to his brain. Barry had suffered a major stroke.

He lost his speech and most of the use of one side of his body. The family were in tatters. Sharon had to give up work to care for him.

Up until having a stroke Barry had managed the property portfolio and taken care of most of the maintenance himself. Could Sharon care for her husband, her family and the management and maintenance of the property portfolio too?

They considered putting the properties on the market but soon realised that after deducting selling costs and CGT there wouldn’t be much money left over. They would also lose their income and they would be leaving their tenants in a difficult predicament too. Sharon has had to employ a lettings agent to manage the portfolio. Since then it has cost the family an average circa £3,000 a month to pay for ongoing maintenance and management.

Fortunately there has been some good news, at least financially. First, low interest rates have meant that Barry and Sharon’s mortgages have got much cheaper than when they started their property rental business. Many of their mortgages have reverted to tracker products due to their fixed rates coming to an end. They are focussing on Barry’s recovery. What will happen when interest rates go back up again though? How will the restrictions on finance cost relief for individual landlords affect them?

The real saviour for the family has been insurance. Fortunately, Barry and Sharon were astute enough to insure against these eventualities. They took out life assurance policies that pay out a regular monthly income right up to Barry’s 65th birthday. These policies were written on the basis that they also pay out in the event of a critical illness. The family are therefore confident that these provisions will see them through these troubled times and out the other side. They will then revert to plan A, which was to live off surplus rental income over and above the mortgage payments on their portfolio or to sell the properties and live off their gains.

What insurance provisions have you made for your family?

How are you investing the windfall of increased cashflow that record low interest rates have produced for your family?

Have you made similar provisions to Barry and Sharon?  If you haven’t it may not be too late, we want to help.  If you have already taken advice and put insurances into place we would like to introduce you to one of our recommended advisers to review your policies and ensure they are competitive. Most important of all, to ensure that the right person gets the right money at the right time.


Property Research Tool Latest Articles

UK Property Research Tool
What you need to know and where to find the information

This Property Research Tool is for the benefit of all property buyers, landlords, tenants, owner occupiers and professional advisers associated with property.

Thanks to business sponsors and Property118 Members for their incredibly generous donations making the development of this Property Research Tool.

Property Research generally begins online

Far too many people fall into the trap of not doing proper online research, they see a property they fall in love with or meet a sales person they trust and the deal is done. For those of us who have learned our lessons the hard way, it still takes a long time to wade though websites to complete thourogh due diligence. The really annoying part for me was finding each website individually and then having to enter the same postcode into each one over and over again to find the right pages. For these reasons I wanted to have a system built as a convenient Aide-mémoire (check-list) for every internet user to be able to use and to provide access to to the websites containing vital information with the minimum number of clicks. Property Research Tool

Essentially the Property Research to is a pop up page, called a modal, which consolidates key information used by landlords and other property purchasers to assess properties. Any website can incorporate this technology free of charge. The functionality works best with Google Chrome and Safari internet browsers.

The only data input for users is the Post Code of the area. The key benefit is the ability to access all information required to complete desktop due diligence without having to remember visit multiple websites, thus saving considerable time and effort. The information is called from several websites which provide insight into the location being searched.

Enough of me trying to explain what it is, why not see for yourself?

If you run a website yourself why not write a review and grab the embed code to install the Property Research Tool functionality on your own website? We even have a widget which creates a “call to action” button (like the one below) which you can size to your requirements.

Want to learn even more?

My buy to let property investment strategy is documented and constantly updated in the Advice section of this website. To get back to the main menu >>>

 

Landlords Buy to Let Property Investment Strategy


Choosing a property location Latest Articles, UK Property Forum for Buy to Let Landlords

My buy to let property portfolio is within three miles of my main residence but I would venture further out. My main concern is that I won’t know other areas as well. Choosing a property location

In the past I’ve looked at Rightmove to understand how much properties can be rented for and how many have been let recently. Also, whether its close to a mainline station, town centre and access to motorways for commuters.

With living in the south, places are more expensive and therefore require a bigger deposit.

What are the key things other landlords/investors research when identifying new opportunities with limited knowledge on location?

Thanks

Paul


Equity finance for buy to let landlords Advice, Buy to Let News, Commercial Finance, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies

Equity Finance for buy to let landlords

In this article I will explain the fundamental difference between equity finance for buy to let landlords and traditional buy to let mortgages facilities. Equity finance for buy to let landlords

Both are mortgages which are secured by a legal charge over a property.

Until recently, only traditional buy to let mortgage finance where interest or interest and capital are repaid monthly have been available. This type of finance is usually secured by a first legal charge over the property, also known as a mortgage.

Equity finance has tended only to be available to blue chip companies but that’s all changing. It’s now possible for landlords to secure equity finance on their buy to let property portfolio or even their own home and without even having to remortgage.

Equity finance doesn’t attract interest at all. In fact, there are no monthly payments whatsoever. Instead, the lender takes a stake in the capital appreciation of the property, typically at the end of the loan term or when the property is sold or refinanced. Additionally, equity finance can be secured by either a first or a second legal charge, hence it can be used as top up finance.

For further details please CLICK HERE


Venture Capital for Buy to Let Landlords Latest Articles

Until now it has not been possible for private landlords to access venture capital but times are changing.

Historically the only form of funding for buy to let investors has been mortgages, i.e. debt based finance where the returns for the provider comprise of fees and interest.

In the world of corporate finance it is common for business funding to comprise a mixture of both debt and equity finance.

Equity finance is different in that the provider makes a return by sharing profits, often when the business or asset is sold or refinanced. This form of capital is also know as mezzanine finance, private equity and venture capital amongst professional corporate advisers. Venture Capital for Buy to Let Landlords

A respected mortgage lender has now entered the  provide equity finance market and will be offering it’s products to private landlords. The lender will take a legal charge over rental property to protect their interests in much the same way as a traditional mortgage lender does, however, their charge will rank second to that of a traditional mortgage lender, thus enabling a mixture of debt and equity funding. A typical structure based will be:-

  • 65% debt on a traditional buy to let mortgage secured by first charge
  • 20% buy to let equity loan secured by second charge
  • 15% owners own funds

No interest or monthly repayments are made on the buy to let equity loan. The return for the lender comes when the property is sold or refinanced. The equity loan is repaid and the lender takes a 40% share of any capital gains. For example, if the property had increased in value by £100,000 the lender would take £40,000 of the profit plus return of capital. If the property had decreased in value the equity lender would still get their capital returned but would take 40% of zero profit, i.e. a zero return on investment.

For most buy to let landlords this very radical alternative to traditional mortgage financing alone will take some thinking through. There are pros and cons which I have thought through in quite some detail. For further details please CLICK HERE


BTL Second Charge Mortgages / No Monthly Payments Advice, Buy to Let News, Commercial Finance Broker Blog, Financial Advice, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies, Property News, UK Property Forum for Buy to Let Landlords

No this is NOT a wind up, it’s 100% genuine and is important that you know how it works so that at the very least you can make an informed decision about new financing choices which until now have been unavailable to buy to let landlords.

It really is a fantastic way to improve cashflow and rental profits or increase gearing without the need to remortgage.

A very credible mortgage lender (Castle Trust) is offering second charge buy to let mortgages with no interest charges and no monthly payments based on 20% of value subject to both the first and second mortgage combined not exceeding 85% LTV on BTL deals and 80% on your own home.

You can use the money in whatever way you wish, for example:-

  1. You can use it to pay down existing mortgages
  2. You can save the money for a rainy day
  3. You can use the money to buy more property
  4. In fact, you can blow it all at the local casino if your daft enough too!

So what’s the catch?

With no monthly payments or monthly interest charged, the lender must get paid somehow. This product works with a profit share basis, in that you borrow 20% of the value of your property the lender will take 40% of any increase in value – on sale or refinance.

You will also need to obtain permission from your existing mortgage lender for a second charge to be added.

Given that your equity in the property may represent as little as 15% of the value of the property and you will receive 60% of the capital appreciation you don’t need to be Einstein to work out that it’s better to use their money than yours, especially if you use the extra money raised to purchase more properties. Remember, you will not be making any payment or incurring any interest whatsoever until you sell or refinance.

Imagine if somebody put this deal to you …. I want to buy a property, you put 20% of the money and I will put in 15% and borrow the remaining 65%. I take all the rental profit/losses and when we eventually sell the property I will get 60% of the capital appreciation and you will get 40%. Oh and by the way, I will decide when we sell, OK? You would probably say no wouldn’t you? Well if you put that deal to Castle Trust, chances are they will say yes providing you have a good credit rating. It really is that good.

Basic criteria

The loan term can be up to 30 years if the equity loan is secured against your own home, 10 years if it’s a rental property.

Your total LTV must not exceed 85% on a rental property, 80% if the loan is secured on your own home..

There are no limits on the number of properties the lender will consider lending on per borrower and their maximum loan exposure to any one client is £1 million.

The minimum advance is £10,000.

For rental properties there is no requirement to have a first mortgage.

You must be able to prove that you have been a landlord for at least six months to qualify and you also need a decent credit score.

Pros and cons?

I can see several reasons why this will be attractive to landlords and I will be using this product myself for the following reasons …

  1. Deals may not stack up on rent to ordinarily qualify for an 85% LTV mortgage but may do so on this basis
  2. It’s a relatively easy way to raise capital against the security of your existing rental portfolio or your own home
  3. Improved cashflow when compared to a conventional mortgage for a higher amount
  4. Raise money without paying off an amazing tracker or fixed rate deal arranged pre-credit crunch
  5. Avoid potentially extortionate fees associated with refinancing
  6. Increase borrowing without affecting cashflow
  7. Use of other peoples money to increase leverage and returns on capital invested
  8. Castle Trust do not legal or valuation fees to arrange finance on your own home and their arrangement fees are only 1% of the advance. Valuations on rental properties cost £195+ VAT and conveyancing costs £216. This means that total fees are likely to be significantly less than arranging a conventional remortgage.
  9. Some landlords will wish to borrow 20% LTV via Castle Trust to partially redeem their mortgage with another lender and thus benefit from improved cashflow.
  10. Some landlords will wish to utilise this product to borrow more money
  11. Some landlords will wish to mix and match, i.e. reduce existing interest bearing debt and increase overall gearing to 85% LTV

Downsides

  1. Your risk is higher than that of Castle Trust because they get paid back before you do on the basis they have second charge over the property. Therefore, if the property decreases in value then you carry the majority of the risk. However, unless you’ve come to the end of the loan term it’s up to you to decide when you sell, they have no say in it.
  2. Future remortgaging may prove more difficult
  3. No new build property, i.e. properties built in the last two years
  4. The product is only available on properties located in England and Wales (not Scotland or Northern Ireland)
  5. 40% reduction in any future capital appreciation but you do need to consider that you may well be able to use the money to make a better return elsewhere
  6. The improved cashflow, in comparison to an higher traditional mortgage, will increase taxable income. However, many will see that it’s better to pay tax on profit than to have no profit at all
  7. Early repayment charge of 5% in year one
  8. If you wish to repay the loan without selling the property then you are committed to proving Castle Trust a return equal to the greater of 2% per year for the period which the loan has run or 40% of the rise in property price
  9. You will need to contact your existing mortgage lender before progressing matters to establish whether they will allow a second charge to be taken

We have no idea how long this funding will be available for so if this is of interest we recommend you to get in quickly. BTL Further Advances No Monthly Payments

We will be arranging introductions to brokers on a panel of specialist advisers which I have personally hand picked. The role of the adviser will be to review your portfolio and provide you with bespoke advice and quotations based upon your personal circumstances.

We are also considering the demand for free of charge introductions to a non-advised mortgage packager service. However, unless you consider yourself to be a sophisticated investor and in need of no advice and associated protection we strongly recommend you to obtain professional advice from our carefully selected panel of advisers.

Obviously we want to make some money out of this too so we are charging a fee of for introductions to our panel of professional advisers. By charging for the introductions we, and the advisers we are referring to, recognise that only serious enquirers will progress matters. This is a good way to ensure that our advisers are not bogged down answering questions from time wasters and also provides a very a good reason for our recommended advisers to prioritise our referrals.

Our fee for arranging an introduction to a professional adviser, who will visit you to provide face to face advice if that is required, is £200, payable to Innovative Landlord Solutions LLP (the legal owner of Property118.com) either by credit/debit card or via PayPal. You will then be contacted within 7 days.

Professional Adviser Introduction Request Form

  • Price: £ 200.00
    Fees are non-refundable


Shared Appreciation Mortgages for Buy to Let Landlords Advice, Buy to Let News, Commercial Finance, Commercial Finance Broker Blog, Financial Advice, Landlord News, Latest Articles, Mortgage News, Property Investment News, Property Investment Strategies, Property News

A radical shared appreciation mortgage product for buy to let landlords is soon to be launched.

The detailed criteria is yet to be released but we do have details of a product launched a few years ago by the same mortgage lender into the residential mortgage market. If we assume that the key features for the buy to let version will be similar, then landlords will be able to borrow 20% of the value of the property with no monthly payments or interest charges whatsoever against the security of a second charge. Up to a further 60% LTV would be able to be borrowed from a different mortgage lender which would take first charge.

In other words, you have to put down 20% deposit in cash on a purchase yourself and if you are refinancing, your total mortgage exposure (including the Shared Appreciation Mortgage), cannot be more than 80% of the value of the property.

Shared Appreciation Mortgages for Buy to Let Landlords

The mortgage lender offering this product (Castle Trust) is well funded via venture capital and is a credible and trusted lender. They only operate via an exclusive panel of mortgage packagers and their network partners.

The way Castle Trust will make their money is by sharing in any capital growth when the property is sold, or in 25 years, or when the borrower reaches age 75, whichever is the sooner.

The product for residential borrowers is based on the lender taking a 40% share in the growth in the value of the property whilst the owner takes 60%. Not bad considering each party is only putting in 20% is it? In fairness though, the property owner does carry the lions share of the risk as the shared appreciation mortgage provider is secured with a second charge.

As an example, based on a property value of £100,000 the figures would work as follows:-

  • Traditional mortgage £60,000
  • Shared Appreciation Mortgage £20,000
  • Owners equity £20,000

Now let’s assume the property is eventually sold for £200,000 – the following is what each party would get back …

  • £60,000 to the traditional mortgage lender (assuming it was an interest only loan and no fees were added)
  • £60,000 to the shared  appreciation mortgage lender (i.e. £20,000 original capital plus 40% of £100,000 growth)
  • £80,000 to the property owner being the balance.

In this example the property owner would quadruple his capital invested and only be paying interest on 75% of his total mortgage liability.

I can see several reasons why this may be attractive to landlords if the BTL product is similar to the version available to residential mortgage borrowers:-

  1. Deals may not stack up on rent to ordinarily qualify for an 80% LTV mortgage but may do so on this basis
  2. Improved cashflow due to only having to service interest on a maximum of 75% of the debt
  3. At 60% LTV many BTL mortgages are significantly more competitive
  4. Landlords will be able to increase their borrowing without affecting their cashflow
  5. Use of other peoples money to increase leverage and returns on capital invested
  6. Castle Trust will rely upon the mortgage valuation of the traditional mortgage lender. Therefore you only have to pay for one valuation.
  7. Castle Trust do not legal or valuation fees and their arrangement fees are only 1% of the advance. This means that total fees could be less than if you arrange a traditional mortgage for a higher Loan to Value.
  8. Castle Trust do not require the consent of a lender providing the first charge. Therefore, the product is technically available to any landlord with borrowings of 80% LTV
  9. Some landlords will wish to borrow 20% LTV via Castle Trust to partially redeem their mortgage with another lender and thus benefit from improved cashflow.

Downsides

  1. The property owner gives away a substantial share of any capital gain
  2. The improved cashflow, in comparison to an higher traditional mortgage, will increase taxable income
  3. Remortgaging may prove difficult
  4. The product is only available on properties located in England and Wales (not Scotland or Northen Ireland)

Questions I can’t answer yet

  • In the example above, has the property owner made a £60,000 capital gain or a £100,000 capital gain?
  • Which buy to let lenders will allow a second charge to be taken over the property for a new purchase?
  • Whether the BTL product will be a mirror of the residential mortgage conditions
  • There are also rumours of 85% overall exposure being offered

We are expecting to receive full details within the next few weeks and funds are expected to be limited. Therefore, if this is of interest we recommend you to get in quickly.

We will be arranging introductions to brokers on our panel of specialist advisers which I have personally hand picked. The role of the adviser will be to review your portfolio and provide you with bespoke advice and quotations based upon your personal circumstances.

The fee for arranging an introduction is £200, payable to Innovative Landlord Solutions LLP (the legal owner of Property118.com) either by credit/debit card or via PayPal. You will then be contacted within 7 days of the product being launched with a view to arranging a priority appointment.

To register please complete the form below.

Professional Adviser Introduction Request Form

  • Price: £ 200.00
    Fees are non-refundable


What is an amateur landlord? Latest Articles, UK Property Forum for Buy to Let Landlords

The phrase “amateur landlord” annoys me, I really wish people would stop using it.

First off, if you were a tenant would you want to be dealing with an amateur landlord?

I don’t recall ever seeing an advert on Rightmove or Zoopla which reads “Amateur landlord offers this stunning 3 bed ……” do you?

Would you put the words amateur landlord in you to let advert?

The phrase smacks of the landlord behaving amateurishly or not having a clue about what they are doing doesn’t it? What is an amateur landlord?

Dictionary definitions of the word amateur include:-

  • activity as a pastime rather than as a profession
  • one lacking the skill of a professional
  • not professional; unskillful

Are these the descriptions that people with just one or two rental properties wish to affiliate themselves with?

A landlord who owns just one property should still act professionally shouldn’t they?

I don’t really understand why the phrase “amateur landlord” ever came about. People who rent out property take an income from the rent, some spend any profits, some reinvest them and all are hoping for capital growth. Whilst this may not be their main profession, and often isn’t, surely they can’t claim to be amateurs? Why would they want to?

Perhaps they don’t want to be called professional landlords in the hope that Consumer Laws will protect them? Well there is no legal definition for what a professional landlord is anyway so I can’t see how that makes any difference. The legal case of OFT vs Foxtons ruled that landlords can be protected by consumer laws, however, the case didn’t set any a criteria for what constitutes a landlord no longer being a consumer.

Would these be consumers?

1) Let’s assume a person earned £500,000 a year as a banker and owned 30 investment properties making a net profit of a further £50,000 a year would that person still be a consumer?

2) Turn the numbers around and let’s assume the banker is making £500,000 of net profit a year from his property portfolio and £50k a year from a non-exec Directorship, what then? Logic might suggest he can’t possibly be a consumer any more because the vast majority of his income comes from being a landlord right? Well I’m not so sure about that either.

3) What about a housewife who owns one property making £50 a month profit after all expenses and has no other income?

The housewife with one property might be the better landlord too, hence more professional?

So is it number of properties which should set the precedent of whether a person remains a consumer or should it be based on what percentage of their earnings relate to rental properties. Based on the three examples above I can’t see logically how it could be either of these.

So, with no precise legal definition for what is a consumer landlord why do we have all these other tags?

Why aren’t landlords referred to as landlords?

If we must have further definitions I suggest the following:-

  1. Accredited Landlord – I like this one providing it refers to accreditation by education, not some “jobs for the boys” Council run scheme which inspects properties. I think it should be compulsory for all landlords to be accredited if they wish to manage their own properties.
  2. Rogue landlord – this is meaningless, either they are criminals or they are not.
  3. Portfolio landlord – a person who owns three or more properties (still a consumer though)
  4. Accidental landlord – that’s almost as bad as amateur isn’t it?
  5. Landlady – such a people run pubs or Guest houses. The legal definition of a female who rents out property is a landlord.
  6. Consumer – a landlord who is protected by unfair consumer contract terms – legal definition is required
  7. Sophisticated investor – a landlord who is not a consumer

Thoughts please?

.


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