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What is your strategy for recycling cash from your property purchases?

 

My original plan was to put down a 25% deposit on BMV property and then about a year or so later re-mortgage at the then current market value hopefully releasing my initial deposit. However, having read Rob Dix’s blog on http://www.propertygeek.net/recycle-your-cash/ it seems this may not be possible.

 

This then leaves me with either a Full Cash Purchase, Bridging Loan, or a Specialist Mortgage for light/heavy refurbishments. As I’m looking to buy nearly new properties, which hopefully require very little work doing to them, the last option is probably a no go.

 

So my question really is, are full cash purchase and then taking out a mortgage six months later or a bridging loans my only two options or is there another way to recycle my cash? Or have I totally misread the blog? (Which has been known to happen more often that I care to admit!  :))

 

 

Ammo

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If you're securing BMV just by being a ninja negotiator (no adding value involved), regardless of how you finance it you have the same challenge: convincing the lender that it's worth 25% more than you paid for it a year ago in a flat (for the sake of argument) market.

Comparables are the key: if the house next door is identical and just sold for what you're claiming yours is worth, that's strong evidence. On top of that, you can explain to the surveyor why it was so much cheaper when you bought it: off-market sale? Bulk buying power? Vendor in a hurry and slow market?

The only real extra issue that my article throws up is that at some point you're going to get found out if you use a mortgage with no early redemption penalty and redeem it after a year. You'll get away with it a couple of times, but I'd say a 2 year refinancing timeframe might be more acceptable - although a broker could give a better steer on the timing.
 

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Using bridging will burn cash and not recycle it if buying at 25% BMV. You have to wait six months and then another two before the remortgage kicks in.Values going up are down to market conditions or adding value to the property. The latter is the easiest way as you can prove through pictures,evidence of work and some times an after works valuation. 

 

Getting a property at a good price aka BMV is more difficult. Buying a £100k property for £90k then this becomes the new value in the short term. You are in as Rob says for 2 years to maiximise your cahnces. There is no guarantee that this will work and I've even seen remortgages after 6 months where the increased value has been accepted.

Regards Simon

Searchlight Finance Ltd

T: 01565 654005

Landlord and specialist property finance advisor dealing with portfolio landlords and developers throughout the UK and beyond.

Buy to Let - Commercial Finance - Bridging Loans - Development Finance - HMO Finance - Refurbishment Loans - Multi Let - Limited Company - Student Lets - Portfolio Finance

Make an Enquiry

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Most lenders will not accept an application until you have owned it six months. It then takes three-six weeks to get the money so eight months in total.

Regards Simon

Searchlight Finance Ltd

T: 01565 654005

Landlord and specialist property finance advisor dealing with portfolio landlords and developers throughout the UK and beyond.

Buy to Let - Commercial Finance - Bridging Loans - Development Finance - HMO Finance - Refurbishment Loans - Multi Let - Limited Company - Student Lets - Portfolio Finance

Make an Enquiry

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I recently remortgaged a BMV purchase after 9 months.  I managed to extract some of my equity, but not all.

I think it's down to what has sold in the surrounding area in the time and the lender (originally the property was valued under the purchase price, and I got a 15-20% discount!).

 

I was quite worried about paying fees upfront without knowing that the valuation would come in as I expected.

Richard Brown suggested that I get a HomeTrack Report. I did this and it showed the property should be valued at the mark I wanted.

I got my mortgage broker to pass the report across to the surveyor - whether he/she actually read it is another matter.

 

In the future I'll be waiting 1-2 years so that I'm more sure of the new valuation.

Check out my property journey here:  http://diytopropertyinvestor.co.uk/

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Good question Ammo but I think you have mutually exclusive objectives.

You want to buy nearly new properties which need little or no work doing to them. You also want to recycle your cash within a relatively short timeframe, presumably so you can use that recycled cash to buy your next property.

The way you finance your purchase is irrelevant Ammo, buying cash, bridging or mortgage is a distraction. It is what you do with the property you buy, not how you finance it that determines if you will succeed in recycling your cash.

There are really only two ways that you can create the conditions to recycle your cash in a timeframe of a matter of months

  1. buy a property below its current market value
  2. add value. Usually by refurbing, extending or improving in some other way

Rob is correct when he says you will struggle to get a property valued above what you bought it for, within months of buying it, when you have done no work to it because there was no work that needed doing to it.

You must be clear that surveyors being asked to survey a property a few months after it was bought and being told it is now worth xxx mount more will come with a sceptical attitude of "oh yeah, so prove it to me then" You can rely that the first question you will be asked by them will be "so you say this property is worth xxx more than you paid for it a few months ago. Please show me any work you have done since you bought it to justify the increase in value you claim?

 

Comparable nearby sold properties will almost certainly not cut it. They will be ignored, reasoning that they must have been superior to your property in some way. Even buying below market value in isolation will not wash with surveyors. Remember their duty is to the lender and they will not value a property higher unless they can see tangible reasons for doing so; buying BMV in isolation is not a tangible reason.

You can pretty much guarantee that you will not get the property valued above what you paid for it unless you have carried out work to improved its value. Apart from any increase in market value to properties in that area generally i.e. if property has risen 3% generally since purchase, a surveyor will allow that increase...not much use to you wanting to recycle your deposit. How realistic is it to rely on a rising market in your area to allow you to get most/all of your cash out within a year or two? Granted there are a few specific areas of London that may have achieved that in the last year or two but how widespread is that and how likely is it to be repeated in the next year or two?

The reality is Ammo, you face a stark choice

  • if you want to play it safe and easy by buying nearly new properties that need no work; you can kiss goodbye to recycling your cash within a few years.
  • if you really want to recycle your cash; buy older properties that need work doing

I cant blame you for wanting your cake and eating it but the reality doesn't work like that. There is nothing wrong with playing the long game, it is safe and low risk. If you want to play the shorter game, you need to be more aggressive.

I hope that helps

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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  • 2 months later...

Hi Stephen

That's a very good question I'm quite inexperienced so I can't really help but I wonder if you found the answer? .I'll be asking the same thing if my first buy to let is a property that needs minor work and I want to recycle my cash within the next following months .

Silvina

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Hi Stephen

That's a very good question I'm quite inexperienced so I can't really help but I wonder if you found the answer? .I'll be asking the same thing if my first buy to let is a property that needs minor work and I want to recycle my cash within the next following months .

Silvina

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replacing the kitchen and bathroom with a better quality one will add some value Stephen. However, the point is how bad was the old ones being replaced? If there was nothing much wrong with them, the added value is likely to be insignificant.

Generally the state of the kitchen and bathroom reflects the overall condition of the property. You don't find an owner keeps the remainder of the property in very good condition but puts up with a scabby kitchen and bathroom. So it is unlikely that you will need to replace K & B but not have to refurb the remainder of the property too.

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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I have just done my first old style refurb flat which i got at acution (so bmv) and then did a complete refurb (re-plaster/windows/doors/central-heating/kitchen/bathroom/etc)  and will be looking to refinance in next couple of months (so 6-7 months total). I am hoping for a 25-30% increase si i can get my money back but will have to see how it plays out. I have kept photo's of all the rooms to demonstrate how much value i have added so hope that helps.

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good luck with that haf, I hope it turns out well for you but I fear that just providing 'before' photos alone will not achieve the result you want. The lenders surveyors mind-set will be to value the property at what you paid for it; unless you present them with compelling reasons not to. Photos will help but you need more to build your case. I will detail below what forms part of the Recycle Your Cash workshop that I run that deals with how to maximise your refinance valuations

 

  1. turn up! if you are not present on the survey, you cannot influence the surveyor
  2. provide a detailed, uncosted works schedule that show what work you have done. How detailed? think of a Quantity Surveyors report; the close you can get to that standard, the better
  3. get comparables of SOLD properties in the same or adjacent streets within the last few months
  4. if the property is not yet tenanted make sure it is 'dressed'. Putting furniture in the property help to give the perception of value
  5. get your own survey report done before you let a lenders surveyor anywhere near the property. Give them all of the above and get an unbiased value from a surveyor not beholding to a lender
     

Put all of the above, together with your photos, in a pack to give to the lenders solicitor

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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good luck with that haf, I hope it turns out well for you but I fear that just providing 'before' photos alone will not achieve the result you want. The lenders surveyors mind-set will be to value the property at what you paid for it; unless you present them with compelling reasons not to. Photos will help but you need more to build your case. I will detail below what forms part of the Recycle Your Cash workshop that I run that deals with how to maximise your refinance valuations

 

  1. turn up! if you are not present on the survey, you cannot influence the surveyor
  2. provide a detailed, uncosted works schedule that show what work you have done. How detailed? think of a Quantity Surveyors report; the close you can get to that standard, the better
  3. get comparables of SOLD properties in the same or adjacent streets within the last few months
  4. if the property is not yet tenanted make sure it is 'dressed'. Putting furniture in the property help to give the perception of value
  5. get your own survey report done before you let a lenders surveyor anywhere near the property. Give them all of the above and get an unbiased value from a surveyor not beholding to a lender

     

Put all of the above, together with your photos, in a pack to give to the lenders solicitor

Super good advice and I like the idea of putting together a detailed pack so will def take that onboard. Will provide feedback once its all done

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