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sam packer

Buy - Refurb - Refinance with Article 50

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Hi Guys,

 

Wanted to get your thoughts about BRR strategy to get majority of money out with Article 50 looming.

 

Doing a full refurb to force appreciation and then seeing prices drop due to Article 50 would be devastating.....do we think this is likely?

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Hi Sam

 

So, there is essentially one big risk that you are concerned about - being able to recycle some / all of your funds in the event that you cannot refinance at the value you want post-works. The two main drivers of this are 1) house prices and 2) lender's appetite. Related to both are valuations.

 

To be frank, this is always a risk with this type of strategy, Article 50 or not...as the market can change during the project for any number of reasons. If the outcome of a negative shift in the market really would be 'devastating' for you, then I would suggest you adopt a different approach instead. You should always look at a BRR deal in a worst case scenario and ask yourself...what if I can't refinance at the value I would like to...can I live with it?

 

If you can't afford to live with leaving your money in for an extended period of time, then this strategy is simply too risky. What are your options should a downswing occur? Extend any short-term finance (expensive), finance/refinance at a lower valuation (leave some money in the deal), sell on (lower profit or even potentially a loss).

 

As Haf said, people will always need somewhere to live, which translates as...the rental market should remain strong, even if it takes a short-term hit. This also means it should help to drive prices back up again should there be a short-term shock in house prices, as yields will become higher and attract investors back into the market again.

 

There will always be swings in the housing market and as investors, we need to be able to accept some of the risks that come with these swings. There could be opportunities as well though don't forget!

 

I won't make a prediction about Article 50 but whatever happens, be it house price / valuation falls or lender withdrawal...over the long-term it is hard to imagine a repeat of the 1990s given our structural housing shortage. Short-term there could be a blip, but over a long period of time, bricks and mortar should still be a good investment.

 

Best

Richard

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