This week it was announced that if the Bank of England’s new proposals go forward landlords may soon have to come up with forty per cent deposits in order to be given buy to let mortgages. Landlords are already struggling to expand their property portfolios due to the rising cost of property and if the Bank of England’s plans go ahead they could make matters worse.
This is why so many landlords are taking part in a new trend: ‘refurbish-to-let’. The idea is pretty simple: buy a rundown yet affordable property, refurbish it, and then let it out when it is in a better condition. However, before you rush out and start buying rundown properties you need to know what refurbish-to-let really consists of:
Finding Rundown Properties
With house prices being so high even properties that are rundown cost a large amount of money meaning they are often not on the market for long. If you are thinking of buying a rundown property, especially in a large city such as London, you need to make sure you check listings on a regular basis. If you already have a large property portfolio then it is unlikely that you will have the time to do this yourself, so it may be wise to get help from a letting agent. Even though you will have to pay for this service, in the long run it will save you a substantial amount of time while enabling you to expand your portfolio.
Choosing a Property
It takes a certain amount of skill to decipher the difference between a property that is rundown and a property that is rundown. The former can be spruced up with a suitable amount of time and money, however the latter will eventually turn into a money pit that you will loathe the sight of. This is why it’s essential that you hire a contractor to survey each property before you buy, as even those that look like they just need a lick of paint could have hidden issues that you don’t want to find out about after you have signed on the dotted line. A good rule to stick by is that if a property has any structural issues you should either stay as far away from it as possible or accept that it will take a substantial amount of time and money to fix – something that is definitely not advised for beginners!
It is highly unlikely that you will be able to afford to purchase a property outright even if it is rundown, which means you will need to take out a mortgage. The second that you decide to do this you are locked into making sure that your barely inhabitable property eventually makes you an income, otherwise it could be repossessed and your business could suffer. Discussing this issue, Stephen Johnson, mortgages director at Shawbrook, said: “We’ve always targeted seasoned operators who are less risky – we tend to shy away from first time landlords.”
If you are new to the refurbishing game and are struggling to find a suitable buy to let mortgage then you may have to start looking into other options. Ray Boulger, mortgage expert with broker John Charcol, suggests: “Landlords with multiple homes could refinance existing properties and so keep to lower rates.” Meanwhile, Mark Harris from broker SPF Private Clients says: “If a landlord is sprucing up a property, they can keep back some of the money that would otherwise go towards the deposit to fund the works.”
Even though refurbishing properties is a great way to expand your portfolio during a time where property prices are high it does come with its own difficulties. However, as with most things practice makes perfect, so start off small and take on bigger projects as your skills and experience grow.