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First of all just wanted to thank Property tribes for the great content it provides and the community that contributes such valuable knowledge and opinions. I'm hoping to gather some opinions/scrutiny on the plan I have for an opportunity that has come up.
I currently have no properties, but my parents have always renovated the houses we have lived in- rather large projects and have rented out two properties .My fathers step dad was looking to downsize, the property was valued and I offered to give him the asking price ~190k for a 3 bed end terrace corner plot: there is a lot of junk in the house/needs a thorough clean but the fundamentals are good, new roof, boiler etc. with a small refurb (3-5K) others are going for 220k mid terrace and the other corner plot went for 245k.
Plan would be I buy the house on a residential mortgage putting down around 30% deposit (with a gift from dad) we renovate it (dad is a plasterer), look to re-mortgage(~6mnths later) on a btl aiming for the valuation 220 @ 75% ltv leaves around 20-25k in and a rent of ~900pcm (all figures given by estate agent who valued property) My father and I would split the rent which may net 250pcm each. Estimated ROI= 3000/12500=24% or taking into account increase in equity 6000/55000= 10% ROI
Being a corner plot there is scope ( granting planning permission) to build another house. My fathers friend has some experience with this hand could project manage. Total costs could (assuming VAT free) could equate to around 60k (possibly self funded). Assuming it would be valued at the same price at 75% ltv on a btl , 0.75x 220= 165k - 60k (building costs) = 105k and rented at 900pcm.
Obviously there's a lot here that could go wrong, and I wouldn't attempt something like this with the experience of my father, but what do you make of the plan and where could it fall down? would remortgaging after 6mnths on a variable mortgage with no fees to a btl put a bad bad mark against my name for future residential mortgages? I'm aware the stress tests are something I'd need to account for (may only get 70% ltv on mortage for the new house). Regarding planning permission I believe in-filing is looked upon favourably by the council but if stage 2 doesn't materialize there is still enough profit in the deal to make it worth while.
I look forward to your scrutiny, hold nothing back!
Hi Jordan,Welcome to the tribe and thank you for your kind comments.With regards to using a residential mortgage to purchase with a view to turning into a BTL mortgage after 6 months - I don't think that is an efficient way to do this, let alone the issue of the "intent" behind your application for a resi mortgage.There are specialist BTL products which allow you to purchase, add value, and then refinance.At this early stage, you need to understand the financial products you, as a individual, have access to as this will stop you wasting time on strategies that will not work for you, as well as bringing clarity to the actual direction you can take.In the first instance, I recommend speaking to the highly experienced team at Property Tribes Financial Services on 01206 654444. They will assist you in finding the right finance to achieve your goals.Finance is the lifeblood of any property business, so it must always come first, and an experienced broker will work with you long term to achieve your property goals, so get one on your side from Day one.See - Benefits of using a mortgage broker for BTL?
Hope that helps for starters and good luck!
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences.
Thanks for your advice Saagar, I agree the 'Intent' may cause an issue and in an ideal world I would use a BTL from the start but I already have money tied up in a Lifetime isa etc. Also keeping it on a residential mortgage I wouldn't be able to pull any of the equity out after renovation which would dampen the figures significantly.
Its the salary multiplier which is the limiting factor on a residential mortgage for me, I'm already at the top end of borrowing and having to make up the difference in deposit so I wouldn't be able to pull any out after renovating unless I change to a BTL.Ill have a chat with my mortgage advisor again though
One thing you have over looked is the tax implications for you and your parents if buying below the true market value.
Hi Douglas, thanks for your reply. How is BMV assessed in real terms? the property is worth 190 in the current condition, which was the average of two evaluations- its only if money was spent on it, it could be worth more. Is it IHT which you are referring to?
Buying property below market price is ok , when you are buying from family HMRC will be all over it.They could demand to see valuations and compare with local properties. Also could claim the under value v true value was a gift Iht should be looked at as well..also should parents go bankrupt at a later date the official receiver has the right to over turn such transactions.Also it is important that both parties get independent legal advice- both sides use separate lawyers for sell and purchase for any conflict of interest.One big point is should you marry or be married and you fall out, the house would be part of any settlement - something your parents did not intend.
Omega Property (Formerly SBS Ltd.)
I am not professionally trained to give advice, generally posting for the benefit of the community or my own personal development.