Published 18 May 2013 · Last reviewed 20 May 2013 · Older article — see current rates
I want to buy a large property and convert it into self-contained flats and need a mortgage or finance?
House to flat conversion Finance one or multiple leases on the property do you have anyone that can fund this?
I know the answer to these questions as I receive calls on this at regular intervals. There are an increasing number of savvy Landlords that have cottoned onto this concept. Effectively, a Buy to Let is an investment and quite simply you won’t drop £100,000 into a hedge fund and walk away – it needs nurturing and often reconfiguring to realise the maximum rental potential. Moving around or creating new rooms in a house is one such way.
[pullquote]I am grateful that we have thousands of people literally browsing our site and my articles to really get the truth rather than the marketing splatter and here is my take on what you need to do to source finance. Just a warning I am a bit biased in this article.[/pullquote]
The prudent Landlords tend to retain 50% equity to make their portfolios liquid for finance and also provide a good level of gearing to offset the interest against tax.
All good, except, you try talking to a building society about the finance on the 50% portion for a house split into flats and you might as well be talking to a Marsian, and strangely its you that they think is odd for even making the suggestion.
So increasingly Landlords are talking to Google for the answers on houses converted into flats, self contained or otherwise – but what a labyrinth of information to plough through to get close to a meaningful answer and it can become very time consuming.
Residential buy to let lenders
On a standalone project this invariably falls short on your objective. Retentions are normally the order of the day for a conversion of a property, and whilst its nice to know you should be recompensed for your outlay – it badly affects you cash-flow.
It can work however, if you raise money against another separate property in your armory and cross-subsidence the new development project with finance that way.
There other more complex strategies that can be employed but these need a discussion.
Your traditional commercial lenders
Widely criticized in recent times as a source of funding for being too free with the pennies before the recession, and have now recoiled into their shell despite cries to get the economy running.
They can offer good rates but are ‘cherry picking’ the safe projects and are looking for more boxes to be ticked than previously existed. The worse examples are those where they have a change of heart part or midway through the project leaving you high and dry. It can be like banging you head against the Wall and I’m concerned about my personal reputation so in all honesty I try to avoid this method of funding at the moment unless entirely essential. It also can very slow and the whole point of taking on this sort of project is to get turnaround as quick as possible for an onward sale or to enjoy the rental revenue, and waiting on an ‘old school bank manager’ to say ‘yes’ with the further sanction of a Head Office is not idea or conducive to running property as a business.
Bridging and short-term lenders
Let’s call a spade a spade these Bridging lenders can charge a lot of money and I can say some of them are very unprofessional glorified money sharks. Many cients get badly treated and knocked during the process. That said you do have some good ones with excellent track records of providing the funding.
[pullquote]“When it comes to Bridging lenders avoid going direct. They only respect established relationships and will play hard ball and can freely change the terms throughout the process – even at the eleventh hour. [/pullquote]
At Niche Advice we have access to over 50 specialist lenders who can all offer something different when it comes to providing funding for conversions and the Vale development projects but the key is often not the rate but how they deliver their promise as a lender. By choosing to partner with us as your dedicated development finance brokers we can work with you to fight your needs and look after your interest. If you like make money we make money if you prosper we prosper and I think that’s a good fit which has seen us partner with some great property entrepreneurs down the years.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.