Friday, 9 October 2015

"Buy, Refurb, Remortgage" in Sunderland

I was speaking to one of our portfolio Landlords this week about the best way to increase the number of properties he owns and we spent some time discussing the "Buy, Refurb, Remortgage" model that can leverage one deposit pot to fund multiple property purchases over time

As with most cases when buying investment properties, getting it right at the start is crucial to success as this strategy relies heavily on getting good Below Market Value discounts

It's crucial to understand that Below Market Value (BMV) is not Below Asking Price! You need to have detailed knowledge of an area and understand the true market value of comparable properties in the area then seek out those where you can negotiate hard to get a true, sizeable discount

This will take time and patience and it may be difficult to pass up opportunities that appear to be 'Good Deals' on paper but just don't offer enough BMV discount...

Ultimately it's a numbers game and will mean you need to be prepared to have many 'cheeky' offers rejected by estate agents (or even be more creative and go direct to the vendors) before a low enough offer is accepted to make this work

One incredibly successful investor & trainer (Rob Moore of Progressive Property) has applied this strategy to secure hundreds of below market value properties and suggests that if you don't feel embarrassed putting in the offer it clearly isn't low enough!

Let's look at a typical example of a Sunderland property that you know has a market value of around £95,000 - £105,000 by looking at comparables for the surrounding area

You'd need to secure a deal to agree to buy it at no more than £70,000 and would put down a 25% deposit (£17,500) and get a mortgage for £52,500

It's vital that both the initial mortgage and the 2nd mortgage must have no Early Redemption Charges or these charges can ruin the profitability of a deal

You'd need to do a 'light refurb' of the property to add value, let's budget £5,000 for that (for this to work it's essential that you don't get tempted to buy real horror shows that require major structural work or a full renovation project)

You need to allow at least 6 months before applying to remortgage (so need to budget for this holding period) and it's vital that the same valuer does not attend as they will value it at the lower recent purchase amount rather than what you know as the real market value (so you'd need to apply to a different lender)

With this in mind whilst you are able to remortgage after 6 months it may be prudent to hold on for a year or two before seeking the remortgage to increase the chance of getting the higher valuation you require (so just rent it out in the meantime) - this is less of an issue in a rising market as house price growth can help achieve the higher valuation (but with Sunderland house prices still being pretty flat you shouldn't rely on this...)

So assuming you achieve the higher valuation you require in 6 months - 2 years, you'd remortgage at 75% of the higher Market Value amount of £105,000 which would pay off the initial £52,500 mortgage and would also allow you to take out £26,250 to pay off the initial deposit and leave a little left over

Even if you were only able to achieve the lower £95,000 valuation for the 2nd mortgage this would still give a cashflowing property with £25,000 equity and only 'leave in' £6,250

This strategy relies on buying well and achieving the higher valuation to recycle the deposit funds back out to fund further purchases

Interestingly the finance company Aldermore is now offering a product that may lessen the risk of not achieving the higher valuation  by offering an initial bridging loan at 75% of the current valuation then allowing this to be converted to a Buy to Let mortgage at 75% of the higher value (they'd knowingly send the same valuer) - clearly this comes at a cost but it's worth knowing the option is there

If you would like to discuss this Buy, Refurb, Remortgage strategy in more depth and see how it could work for you in Sunderland or would like to have a free, no obligation chat about any aspect of property investment in Sunderland feel free to give me a call on 0191 567 857 or email

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