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Strategy and Refinancing Options - releasing equity without a current income?


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Hello Everyone, 

 

I am the midst of my strategy formation before jumping into my next property venture. I had a question regarding the finer details of refinancing options... I imagine the general advice may be "speak to your tax accountant / mortage broker", which ultimately is the plan - I'm just trying to get vaguely informed before I enter that discussion. I am aware that this has turned into a bit of a lengthy post... any help or advice would be fantastic!

 

Quick Background:

I currently live in a 2 bed flat which I have renovated and own outright. The second room is currently let out. I've recently been made redundant (having worked within construction management) and am now looking to focus on another property project in the coming months. I hold sufficient cash to purchase a second small renovation project outright.

 

My Aim: 

Long term - Net rental income of £2700/m in 4 years time, whilst also holding access to funds to continue flipping projects as and when.  

 

Strategy:

I am currently split between two directions for my strategy:

 

Option 1 - Initially pursue Buy-Renovate-Sell projects in order to grow the initial cash pot, moving into Buy-Renovate-Refinance by end of year 2. 

Option 2 - Pursue BRR from the get-go, refinancing as soon as possible and recycling deposits. 

 

My Queries:

1. I am keen to explore the potential of remortgaging my current property (which i live in) to release funds for future projects. Does anyone have experience of doing this without a salary to satisfy the lender? If so, I would be interested to hear how this affected the terms of the mortgage?

 

2. Similarly, how does a lack of income affect the ability to remortgage a B2L? Also, I have heard anecdotally that it banks require 6 months of proven rental income before discussing remortgaging terms on a property - is this set in stone? Anyone aware of a way to refinance over a shorter period? If this is the deal (and unless I have missed something), my strategy will certainly be pushed towards the first option as I will not be hampered by the long waiting periods between completed renovation and refinancing...

 

3. I have also heard anecdotally that when banks consider salaries, they require proof of income for over 6 months? Is this the same when you take an income from a LTD company? The reason I ask is as follows: Assume that I can not release any equity since I do not have a current salary. Would a workable strategy be: 1. Over the first year, initially complete B2S projects within a LTD company structure. 2. after 6 months (?), use this proven income from the LTD co. to release equity on current properties? Would be interested to hear if anyone has done this? Or equally, if anyone can shoot this down as a terrible idea!

 

Thanks for taking the time to read this and I look forward to hearing from you! 

 

Will

 

 

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Hi Will

 

Qualification: I am not a mortgage broker! But here goes...

 

Owning your own company is considered to be self-employment and most mainstream lenders will require two year's accounts before they will lend to you. That's the first point, which will certainly affect the refinance of your own home. There are some exceptions, who will take one year's accounts, Nat West were certainly one, but it might also depend on your 'trade'.

 

BTL lenders usually require you to have a minimum provable income...outside of self-employment for the same periods of time. However, a couple of BTL lenders will accept you even without this minimum income, provided they are sure you can fund the properties adequately. This might mean a lower LTV for example.

 

So, the BRR strategy might be possible, but certainly trickier in the short-term, so that favours your first option more.

 

In terms of your specific questions, from my experience I can offer the following insights;

 

1. You can usually get bridging finance secured on your own home. As I am sure you aware, it is expensive, but it is also a special class of loan that only regulated lenders can provide. It is potentially useful for short-term projects with a safe and profitable exit therefore, for obvious reasons.

 

2. See my intro points above. Commercial (non-CML lenders) are your best best to refinance sooner, but the income proof point is still an issue as said.

 

3. If it's your own company, then it is considered to be self-employment and my earlier points probably trump the 3 or 6 months salary rule that many lenders operate.

 

As a general observation, funding your lifestyle over the next few years is also something to consider from a practical point of view. Don't forget that you need funds to buy properties, hold them and do them up, plus your living costs (assuming you do not have a separate source of income). With BTS, this is possible but it may not mean you can effectively grow your pot due to the amount you need to carve out for provable income (typically £25k per year). Clearly, the more funds you hold the better. With BRR, this becomes even more pronounced as the income from rents is usually much less than the income from trading.

 

Hope that helps, but you know what I'm going to say in conclusion already don't you? Talk to a decent mortgage broker before doing anything else, I can suggest a couple privately if you wish.

 

Good luck with the plans!

 

Best

Richard

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

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Hi Richard,

 

Thanks for the detailed reply, really appreciate it. 

 

- Interesting to learn that i'm looking at 2 years worth of accounts if going through my own company. I definitely need to mull this over some more. 

- Thanks for raising bridging as a possible solution. My current plan is to complete my first BTS using my own cash - I'm keen to cut my teeth on a smaller project, where I won't be contending with high-interest payments if an overrun occurs.

- Good point regarding the funding of my lifestyle - I have budgeted for the next few months, and the current plan is to be working part time in between projects to keep me ticking over. 

 

Think you're right, I need to have a chat with a mortgage broker sooner rather than later! Need to determine what equity I can release from my current flat!

 

Would be great if you could email me the recommendations which you mentioned? I'm at willgold1992@gmail.com. 

 

Thanks again,

 

Will

 

 

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