How to Finance Refurbs With Alasdair Devine
Welcome to another episode of The Progressive Property Podcast! In today’s episode, your host Peter interviews specialist mortgage broker and longtime partner and friend, Alasdair Devine, about the best ways of financing refurb projects for buy-to-let property investing. In most cases, a buy-to-let mortgage is the best way to go, but if habitability is in question and you’re on a tight timeline, a bridge-to-let may be the more effective option to getting your property and getting it refurbished.
Key Takeaways:
Peter talks with Alasdair about refurbs, and that, while they vary in size and scope, generally in buy-to-let property investing, a refurb usually means fixing up or replacing the kitchen, bathroom, and carpets, as well as the decorating and other miscellaneous aspects.
But it can be tricky financing property refurbs sometimes because while a buy-to-let mortgage lender will consider the property, it will only usually be on the condition that the property is habitable on the date of completion of the purchase, which can be an issue if it requires refurb.
Peter points out that there doesn’t really seem to be any hard and fast rules as to what constitutes “habitability” and that every bank has its own criteria. Alasdair says that in his experience, though, it’s usually very simple, big picture factors like if there is a functioning kitchen or bathroom, if the property is watertight, and if it has all the basic services.
Peter, however, says it still seems like a bit of a lottery, recalling someone he knew who bought a horrible property with damp, rot, and other issues that would make a property virtually uninhabitable. But, against all logic, this person was able to secure a buy-to-let loan for it anyway. On the other hand, Peter was denied a loan on the grounds of the kitchen being uninhabitable even though it was still functional, just old.
Alasdair does admit that you can get wildly different views from surveyors on the same single property, to which Peter adds that it means that if you get turned down by one lender, you might as well try another because they may have different criteria for habitability.
There’s a lot of debate as to whether you should refinance with your existing lender or go find a new one. It’s a double-edged sword because the surveyor who was there before is likely to be pessimistic about the uplift in quality. A new lender with fresh eyes might give you a better value. But then there’s the issue with early repayment charges and if they are high, then it's often not worth trying to find a different lender.
Peter and Alasdair list off other options for financing, including using the portability of an existing buy-to-let mortgage to move it from one property to another, as well as paying for the property with cash, doing the refurb, and then refinancing the mortgage six months later. Using equity is also a perfectly valid option for funding deposits or purchases.
But in the case of properties that are clearly not going to be deemed inhabitable or are bought at well below the market value, a bridge-to-let can be an effective solution. A bridge, which is a short-term loan, is easier to get than a buy-to-let and much faster. It is, however, also more expensive because it is viewed as a riskier loan.
Both Peter and Alasdair agree that buy-to-let rates will always be the most competitive, but depending on your needs and the property and the time, a bridge-to-let is worth considering.
Alasdair provides a specific example of a client of his successfully using a bridge-to-let loan after buying a property through an online auction. After the deposit, he only had 28 days to complete, and while he initially wanted to do a buy-to-let, habitability was going to be an issue. So instead he used a bridge-to-let, got surveyors to the property within a week, got approved, and took care of the entire transaction within the 28 days, which a buy-to-let would not be able to fulfill.
Best Moments:
“The reality of property is that probably the best way of doing property is to buy properties where you can add value.”
“You put 10 surveyors in a room, you’re likely to get 11 different opinions.”
“I do know some banks that are keen to avoid what they would regard as buy-to-let speculative trading.”
“From a cost point of view, buy-to-let rates are extremely competitive now and will always be cheaper than traditional bridging. But, worth talking to a good broker, and looking at the figures and just seeing what’s right for you at the time.”
Guest Contact Method:
Email thepropertyteacher@gmail.com to request information on getting in touch with Alaisdar
About the Host:
Peter Jones is a Chartered Surveyor, an author, and a serial buy-to-let property investor. He has been involved in property for over 35 years and now owns 78 letting units. He is still actively involved in buying and renovating property, and regularly flips properties for profit. Peter has also written a number of successful property books, including An Insider’s Guide to Successful Property Investing, 63 Common Defects in Investment Property and How to Spot Them, the highly acclaimed The Successful Property Investor’s Strategy Workshop, and The Property Renovator’s Workshop, in which Peter describes step-by-step how he built his own property portfolio, starting with virtually none of his own money.
