Bank loan for renovation project?
Discussion
Ok so I've got the opportunity to make a good bit of money on a very very low priced house that the owner is trying to offload as quickly as possible before he resorts to auction.
The plan is to offer between 30&35K for a 3 bed semi detached in a fairly deprived area of Leeds. Budget will be 10k and i know i can stick to this no problem, An identical sized house 8 doors down sold for 80k in the past few weeks and this year sale prices in the immediate area have been selling between 70 and 80k depending on condition. The market as far as i can tell seems to be improving with a lot more selling vs 12 months ago and prices are on the up. there is potential for 20-30k profit for 8 weeks work and that's using inflated figures for the budget and pricing it lower than average for the area. Any more would be a bonus but im not one to count my chickens
I have renovated 3 of these exact same houses this year for my mum who rents them out and i have come under 8k for the full refurb on all of them, thats complete replumb/rewire, kitchen, bathroom, joinery and deocoration. Average refurb time is 7-8 weeks.
The problem is, how do i convince a bank to lend me 40k when i don't own any assets, not enough accounts to show income for last 3 years and have never required a loan previously. My credit score is excellent and i am completely debt free apart from car finance. My mum is happy to act as guarantee for the loan which is something they might go with but apart from that they seem as likely to lend to me as they are a monkey.
Do i put a plan together to show the figures and my research and try and convince them to go with it or would i be wasting my time in this current climate. Any additional info that i could gather to work in my favour?
In my head there is very little risk, i have the experience to do the work myself start to finish within 10 weeks tops, the house will be priced well to attract both investors and first time buyers and if it never sells it can be rented out with a minimum %15 yield.
Sorry for the length of post, a lot of info the cram in there.
The plan is to offer between 30&35K for a 3 bed semi detached in a fairly deprived area of Leeds. Budget will be 10k and i know i can stick to this no problem, An identical sized house 8 doors down sold for 80k in the past few weeks and this year sale prices in the immediate area have been selling between 70 and 80k depending on condition. The market as far as i can tell seems to be improving with a lot more selling vs 12 months ago and prices are on the up. there is potential for 20-30k profit for 8 weeks work and that's using inflated figures for the budget and pricing it lower than average for the area. Any more would be a bonus but im not one to count my chickens
I have renovated 3 of these exact same houses this year for my mum who rents them out and i have come under 8k for the full refurb on all of them, thats complete replumb/rewire, kitchen, bathroom, joinery and deocoration. Average refurb time is 7-8 weeks.
The problem is, how do i convince a bank to lend me 40k when i don't own any assets, not enough accounts to show income for last 3 years and have never required a loan previously. My credit score is excellent and i am completely debt free apart from car finance. My mum is happy to act as guarantee for the loan which is something they might go with but apart from that they seem as likely to lend to me as they are a monkey.
Do i put a plan together to show the figures and my research and try and convince them to go with it or would i be wasting my time in this current climate. Any additional info that i could gather to work in my favour?
In my head there is very little risk, i have the experience to do the work myself start to finish within 10 weeks tops, the house will be priced well to attract both investors and first time buyers and if it never sells it can be rented out with a minimum %15 yield.
Sorry for the length of post, a lot of info the cram in there.
As in get one? i doubt they would give me one, and i would also require the funds to do the work.
As in do i have one? nope, i currently rent.
As in do i have one? nope, i currently rent.
Sarnie said:
Mortgage?
Also, beware when selling that if your buyers require a mortgage, a lot of lenders won't lend where the vendor has owned the property for less than six months.....
Why is that? how do all the other developers get around this?Also, beware when selling that if your buyers require a mortgage, a lot of lenders won't lend where the vendor has owned the property for less than six months.....
dazwalsh said:
Why is that? how do all the other developers get around this?
Yes, as in get a mortgage.You are not going to get an unsecured £40k loan from the bank.
With regards to the sale of the property they probably sell to cash buyers, wait till they've owned the property six months or try to guide the buyers into which lender will accept this scenario which would be difficult if that lenders won't lend to your buyers or the buyers don't like the look of that lenders products etc etc.
Edited by Sarnie on Saturday 31st August 23:04
dazwalsh said:
I have renovated 3 of these exact same houses this year for my mum who rents them out and i have come under 8k for the full refurb on all of them, thats complete replumb/rewire, kitchen, bathroom, joinery and deocoration. Average refurb time is 7-8 weeks.
you mum seems fairly flush...and appears to owe you a favour..Kudos said:
£40k isn't a big lot of cash, can someone lend you it with promise of a decent return?
Myself, and I'm sure others, may be interested
Thats exactly what I thought. Easy enought to secure the loan against the property. I'd be interested, but it would probably suit someone closer to Leeds.Myself, and I'm sure others, may be interested
dazwalsh said:
Ok so I've got the opportunity to make a good bit of money on a very very low priced house that the owner is trying to offload as quickly as possible before he resorts to auction.
The plan is to offer between 30&35K for a 3 bed semi detached in a fairly deprived area of Leeds. Budget will be 10k and i know i can stick to this no problem, An identical sized house 8 doors down sold for 80k in the past few weeks and this year sale prices in the immediate area have been selling between 70 and 80k depending on condition. The market as far as i can tell seems to be improving with a lot more selling vs 12 months ago and prices are on the up. there is potential for 20-30k profit for 8 weeks work and that's using inflated figures for the budget and pricing it lower than average for the area. Any more would be a bonus but im not one to count my chickens
I have renovated 3 of these exact same houses this year for my mum who rents them out and i have come under 8k for the full refurb on all of them, thats complete replumb/rewire, kitchen, bathroom, joinery and deocoration. Average refurb time is 7-8 weeks.
The problem is, how do i convince a bank to lend me 40k when i don't own any assets, not enough accounts to show income for last 3 years and have never required a loan previously. My credit score is excellent and i am completely debt free apart from car finance. My mum is happy to act as guarantee for the loan which is something they might go with but apart from that they seem as likely to lend to me as they are a monkey.
Do i put a plan together to show the figures and my research and try and convince them to go with it or would i be wasting my time in this current climate. Any additional info that i could gather to work in my favour?
In my head there is very little risk, i have the experience to do the work myself start to finish within 10 weeks tops, the house will be priced well to attract both investors and first time buyers and if it never sells it can be rented out with a minimum %15 yield.
Sorry for the length of post, a lot of info the cram in there.
I`ll play the Devil`s advocate here, don`t take it personal but it will help you draft out a plan for both you and anyone who will lend you the money. I always do one of these before seeking funds. The plan is to offer between 30&35K for a 3 bed semi detached in a fairly deprived area of Leeds. Budget will be 10k and i know i can stick to this no problem, An identical sized house 8 doors down sold for 80k in the past few weeks and this year sale prices in the immediate area have been selling between 70 and 80k depending on condition. The market as far as i can tell seems to be improving with a lot more selling vs 12 months ago and prices are on the up. there is potential for 20-30k profit for 8 weeks work and that's using inflated figures for the budget and pricing it lower than average for the area. Any more would be a bonus but im not one to count my chickens
I have renovated 3 of these exact same houses this year for my mum who rents them out and i have come under 8k for the full refurb on all of them, thats complete replumb/rewire, kitchen, bathroom, joinery and deocoration. Average refurb time is 7-8 weeks.
The problem is, how do i convince a bank to lend me 40k when i don't own any assets, not enough accounts to show income for last 3 years and have never required a loan previously. My credit score is excellent and i am completely debt free apart from car finance. My mum is happy to act as guarantee for the loan which is something they might go with but apart from that they seem as likely to lend to me as they are a monkey.
Do i put a plan together to show the figures and my research and try and convince them to go with it or would i be wasting my time in this current climate. Any additional info that i could gather to work in my favour?
In my head there is very little risk, i have the experience to do the work myself start to finish within 10 weeks tops, the house will be priced well to attract both investors and first time buyers and if it never sells it can be rented out with a minimum %15 yield.
Sorry for the length of post, a lot of info the cram in there.
I know you`ve done 3 this year for your mum but have done one of these for yourself before? Especially when you are using someone else`s money and interest which you are responsible for?
Have you gone through the figures and stress tested the deal and confirmed at least 2 exits?
I`d be a bit careful and ask why the owner is trying to offload quickly. When you say deprived area, would the prop be a target for thieves when you are refurbing? The scumbags will be after tools,copper and the new boiler and could turn the refurb into a bit of a nightmare.
If you are selling on quickly you will need to sell to a local LL/investor, in this case they will want some discount, especially if buying with cash. So the end sale price would be say £55-60k if the OMV (open market value) is £70-80k.
For a FTB you may sell for a higher amount but then you will have to have owned the prop for a min of 6mths and some lenders won`t accept an application on the prop until you have owned for min of 6mths 1day. It`s a guide not a rule but as a seller you will have no control over this part, so must allow for this in your calcs. This means you will then have to hold the prop for approx 8mths, have you allowed for the finance costs for this? £350mth x8 = £2,800
£35k+£10k =£45k plus buying and selling fees £4k (sols & EA`s)+ £2,800 int = £47,800. Still a profit of a min of £7,200 but not £20-30k as you have said and not 7-8 or 10weeks either.
Have you spoken to 2 local EA`s and asked their advice on a resale price for quick sale? Take their advice with a pinch of salt as they want your business!
You have then said if it doesn`t sell you can rent it out and achieve a 15% yield, but have you thought how you can pay off your private loan? Would you be looking for a BTL mortgage? If so, you don`t sound sure you can get a mortgage? Especially for less than £50k and without an income?
A 15% yield also says the rent would be approx £600mth is this correct?
A cash investor would like to know you have stressed tested the deal and have confidence in the figures and the local market, not just the back of a fag packet estimate on profits.
If you want to PM for any advice feel free, happy to help.
Sorry for late reply, and thank you for the response, very informative
ts that target empty properties, most recent as last week i had a few makita drills stolen from my current refurb, heard the front door go and before i knew it they were gone. I was upstairs.
The property in question has also been a target and has twice been ransacked for the copper which is why the owner is urgent to shift it. Also empty properties in the Leeds council no longer avail of council tax exemption and it may well be 200% council tax in order to deter properties being sat empty which this one has for at least 10 years. He told me he had intended to rent it out but hadn't got round to doing so due to other commitments. He seems a genuine sort of bloke.
As for the risk of theft, whilst work is underway i fit solid handles and anti snap locks to both doors, burglar alarm is put in first thing and also temporary CCTV cameras. I favour plastic pipe over copper where possible and the boiler and rads go on the wall the day before tenant moves in.
I am now aiming towards renting rather than resale as i have no real need to benefit short term from it, so a more long term view would be better. I wouldn't even be relying on the rent as an income as such, and if possible use all the rent to pay the mortgage off faster. This would then allow me to purchase property number 2 a lot easier and quicker.
I always air on the side of caution with the figures, i know from experience the property will let very quickly for £650 a month and that puts the yield up to around 17% with a basic yield calculation, the 15% was based on a 10 month occupancy just incase. This is with a DSS family however, but with direct payments for rent from the council its a feasible option these days and minimises risk.
I am due to sit down with a mortgage adviser Friday at my bank and hopefully she can see enough potential there, although due to only having 1 years accounts rather than 3 it will be down to some skinny tie in underwriting to make the call.
cerberaperv said:
I`ll play the Devil`s advocate here, don`t take it personal but it will help you draft out a plan for both you and anyone who will lend you the money. I always do one of these before seeking funds.
I know you`ve done 3 this year for your mum but have done one of these for yourself before? Especially when you are using someone else`s money and interest which you are responsible for?
Have you gone through the figures and stress tested the deal and confirmed at least 2 exits?
I've not done a refurb using my own money but I've been doing them non stop for the past 5 years, have gained a lot of reliable contacts and stuck to budgets and timelines every time so barring a huge problem i.e the place burning down i am confident of my figures. How to show the bank this i don't know.I know you`ve done 3 this year for your mum but have done one of these for yourself before? Especially when you are using someone else`s money and interest which you are responsible for?
Have you gone through the figures and stress tested the deal and confirmed at least 2 exits?
cerberaperv said:
I`d be a bit careful and ask why the owner is trying to offload quickly. When you say deprived area, would the prop be a target for thieves when you are refurbing? The scumbags will be after tools,copper and the new boiler and could turn the refurb into a bit of a nightmare.
Unfortunately yes there is opportunist thieving sts that target empty properties, most recent as last week i had a few makita drills stolen from my current refurb, heard the front door go and before i knew it they were gone. I was upstairs.The property in question has also been a target and has twice been ransacked for the copper which is why the owner is urgent to shift it. Also empty properties in the Leeds council no longer avail of council tax exemption and it may well be 200% council tax in order to deter properties being sat empty which this one has for at least 10 years. He told me he had intended to rent it out but hadn't got round to doing so due to other commitments. He seems a genuine sort of bloke.
As for the risk of theft, whilst work is underway i fit solid handles and anti snap locks to both doors, burglar alarm is put in first thing and also temporary CCTV cameras. I favour plastic pipe over copper where possible and the boiler and rads go on the wall the day before tenant moves in.
cerberaperv said:
You have then said if it doesn`t sell you can rent it out and achieve a 15% yield, but have you thought how you can pay off your private loan? Would you be looking for a BTL mortgage? If so, you don`t sound sure you can get a mortgage? Especially for less than £50k and without an income?
A 15% yield also says the rent would be approx £600mth is this correct?
A cash investor would like to know you have stressed tested the deal and have confidence in the figures and the local market, not just the back of a fag packet estimate on profits.
Yes i think i would need a BTL mortgage, with a loan from the parents to cover the refurb.A 15% yield also says the rent would be approx £600mth is this correct?
A cash investor would like to know you have stressed tested the deal and have confidence in the figures and the local market, not just the back of a fag packet estimate on profits.
I am now aiming towards renting rather than resale as i have no real need to benefit short term from it, so a more long term view would be better. I wouldn't even be relying on the rent as an income as such, and if possible use all the rent to pay the mortgage off faster. This would then allow me to purchase property number 2 a lot easier and quicker.
I always air on the side of caution with the figures, i know from experience the property will let very quickly for £650 a month and that puts the yield up to around 17% with a basic yield calculation, the 15% was based on a 10 month occupancy just incase. This is with a DSS family however, but with direct payments for rent from the council its a feasible option these days and minimises risk.
I am due to sit down with a mortgage adviser Friday at my bank and hopefully she can see enough potential there, although due to only having 1 years accounts rather than 3 it will be down to some skinny tie in underwriting to make the call.
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