Financing major renovation on a property purchase
Discussion
My wife and I are looking to buy a renovation project for our next home and are seeking advice on how to finance the complete renovation (~£150k). Is there a way to finance the work to benefit from the significantly higher post renovation value?
The ideal outcome would be to unlock some equity to invest elsewhere. Has anyone got experience of doing this for a property they've purchased?
The ideal outcome would be to unlock some equity to invest elsewhere. Has anyone got experience of doing this for a property they've purchased?
What’s your question exactly ?
You want to leave yourself with 150k cash to do the works when buying a new mortgaged property?
If the ltv works then this is totally do-able - we did exactly this with our place and kept back the cash and spent it on builders.
In theory we could remortgage next time with a much better LTV as the value has probably risen by more than the money we spent leaving us somewhere near 50% after the build.
You want to leave yourself with 150k cash to do the works when buying a new mortgaged property?
If the ltv works then this is totally do-able - we did exactly this with our place and kept back the cash and spent it on builders.
In theory we could remortgage next time with a much better LTV as the value has probably risen by more than the money we spent leaving us somewhere near 50% after the build.
Apologies for the lack of detail.
We have sufficient equity and borrowing to comfortably buy the house and renovate it. But using the equity we have to finance the renovation means we move into a lower (higher?) LTV bracket.
If debt was going to remain this cheap, I would see no problem in taking on a 2yr fixed deal then remortgaging. But for the next house we really want to fix for 5yrs assuming deals will not get much better.
What I was thinking is whether a short term finance arrangement for the duration of the renovation (3-6mths), followed by a mortgage at the value of the completed property would enable me to take some of the equity out of the property and invest it elsewhere.
Has anyone done something similar?
We have sufficient equity and borrowing to comfortably buy the house and renovate it. But using the equity we have to finance the renovation means we move into a lower (higher?) LTV bracket.
If debt was going to remain this cheap, I would see no problem in taking on a 2yr fixed deal then remortgaging. But for the next house we really want to fix for 5yrs assuming deals will not get much better.
What I was thinking is whether a short term finance arrangement for the duration of the renovation (3-6mths), followed by a mortgage at the value of the completed property would enable me to take some of the equity out of the property and invest it elsewhere.
Has anyone done something similar?
We’re coming to the end of one of our Reno’s and I can say with cast iron certainty, if you can do it in 6 months, start to finish, you’re a better man than I. Best I’ve done so far (and I’ve done a few) is 10 months.
I suppose if you had a big team on it then 6 months may be doable, but it will cost you and you’d need the team in place and costs agreed etc to do that. Factor in Covid and rising material costs and you have to allow some wiggle room on budget and time scales as even simple things are out of stock across the board.
Financing is always a hurdle. Borrow against the property, cheap credit cards and borrow from friends and family with an agreement to add some ROI for them, always a way to sweeten deal.
I suppose if you had a big team on it then 6 months may be doable, but it will cost you and you’d need the team in place and costs agreed etc to do that. Factor in Covid and rising material costs and you have to allow some wiggle room on budget and time scales as even simple things are out of stock across the board.
Financing is always a hurdle. Borrow against the property, cheap credit cards and borrow from friends and family with an agreement to add some ROI for them, always a way to sweeten deal.
Might be just me not understanding, but can you confirm what you want to do and throw some numbers around it please?
From what you've written I 'think' your plan is:
- Live in present house, got equity and affordability to borrow enough to purchase the new place and fund the renovation without needing to borrow against the new property
-Do the work (6 months- whatever it takes) then sell house you're in now and get a mortgage on the new place?
Your question is what's the cheapest way to do it rate wise?
Am I close?
From what you've written I 'think' your plan is:
- Live in present house, got equity and affordability to borrow enough to purchase the new place and fund the renovation without needing to borrow against the new property
-Do the work (6 months- whatever it takes) then sell house you're in now and get a mortgage on the new place?
Your question is what's the cheapest way to do it rate wise?
Am I close?
hajaba123 said:
From what you've written I 'think' your plan is:
- Live in present house, got equity and affordability to borrow enough to purchase the new place and fund the renovation without needing to borrow against the new property
-Do the work (6 months- whatever it takes) then sell house you're in now and get a mortgage on the new place?
Your question is what's the cheapest way to do it rate wise?
Am I close?
Sequence would be:- Live in present house, got equity and affordability to borrow enough to purchase the new place and fund the renovation without needing to borrow against the new property
-Do the work (6 months- whatever it takes) then sell house you're in now and get a mortgage on the new place?
Your question is what's the cheapest way to do it rate wise?
Am I close?
- Sell current property (~£400k equity)
- Relocate to new city (rent or stay with inlaws)
- Finance new property (£900k - 25% deposit)
- Use remaining equity/debt to finance renovations (est. £150k)
- Refinance @£1.2m est. final value taking out £100k to invest elsewhere.
thanks, I was miles off then, sorry. I'm not an expert in this stuff as you can probably tell
Not sure you can get a traditional mortgage on a property you're not living in, will it have a kitchen/ roof etc? Sounds fairly specialist but guess if you genuinely add value to it by the work you're doing then you may be able to get some equity back out once done if the valuations stack up and the lender likes it
Not sure you can get a traditional mortgage on a property you're not living in, will it have a kitchen/ roof etc? Sounds fairly specialist but guess if you genuinely add value to it by the work you're doing then you may be able to get some equity back out once done if the valuations stack up and the lender likes it
Esotericstuff said:
Sequence would be:
- Sell current property (~£400k equity)
- Relocate to new city (rent or stay with inlaws)
- Finance new property (£900k - 25% deposit)
- Use remaining equity/debt to finance renovations (est. £150k)
- Refinance @£1.2m est. final value taking out £100k to invest elsewhere.
When I arranged my friend’s mortgage in a similar scenario (though he already lived there). I put him on an ERC free tracker deal whilst the renovations were done then when completed remortgaged him to a new lender based on the new valuation - Sell current property (~£400k equity)
- Relocate to new city (rent or stay with inlaws)
- Finance new property (£900k - 25% deposit)
- Use remaining equity/debt to finance renovations (est. £150k)
- Refinance @£1.2m est. final value taking out £100k to invest elsewhere.
mike74 said:
Are you expecting the "significantly higher post renovation value" uplift to be more than the £150k your renovation will cost?... Because it doesn't always necessarily turn out for that to be the case.
This is a very valid question. I put all the numbers into a spreadsheet today and it's highly likely that we would end up making a net loss. Particularly when you factor in the renting and borrowing costs during the renovation.I am not particularly bothered about making a loss overall, since this is a home, not an investment. But I would like to do it all in the most economical way. And ultimately not lock up all my capital in my primary residence while debt is still cheap.
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