Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

www.thepropertyfinanceguy.co.uk

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

www.thepropertyfinanceguy.co.uk

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Today's discussion is with Michael Primrose, the Property Finance Guy, looking at the ins and outs of property finance for investors. We discuss good brokers, good lenders, and how to make yourself a good borrower, as well as some strategy specific tips and tricks depending on where your focus lies. 

You can listen to Inside Property Investing Podcast here - https://itunes.apple.com/gb/podcast/inside-property-investing-podcast-interviewing-inspiring/id966611455?mt=2

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

www.thepropertyfinanceguy.co.uk

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Specifically in this section, I am going to be dealing with how lenders actually deal with theinterest when borrowing fromthem. I will be dealing withBridging Loans and Development Finance(we all know how the interest on Mortgages are dealt with!)

When taking a Bridging Loan or Development Finance, the lender will deal with the interest in one of three ways.

The first way is that they retain the interest for the term of the loan. What this means, is they keep all the interest for the term of the loan aside at the beginning, so that they are essentially paying themselves their interest back, before you have even taken the loan. 

You will often see a Lender offer a ‘Gross’ facility, which they then take the interest and the fees off of, and then whatever is remaining becomes the ‘Net’ facility. 

You can see in this example that you have a gross facility of £75,000, which when you take away the interest and fees, becomes £64,500. You can see that they have retained the full 12 months of interest upfront, which has accounted for £9,000 of the reduction. They have also retained the arrangement fee upfront, which accounts for the other £1,500. 

By retaining the interest in this way, the Purchaser requires more than the usual 25% deposit, they actually need 37% plus their soft costs. This can make a huge difference when you are looking at your deals, so ensure you have budgeted this in correctly.

When looking at Development Finance on a retained interest basis, the Lenders will look at your build schedule to work out where you will be taking tranches down. This build schedule will often be prepared by the Contractor and may come in the form of a Gantt Chart. The Contractor will prepare this as they know when the trades are going to be coming onto the site and when they are going to be invoicing you for the works.

The Development Lender will often split their loans into two parts, and then charge the interest on these parts separately. 

The first part of the development loan is the day one advance. This often works in the same way as a bridging loan and is very similar to the example above. They offer a % LTV Day one as a gross facility and they then deduct the interest on this section to create the net loan (i.e. the amount released to the solicitor towards the purchase). 

The second part is the development facility. This is the section that is released in tranches to allow you to carry out the build. The Lender charges interest on this as you draw it down. Some Lenders may charge you on a daily basis, some may charge you on a monthly basis. If they charge you on a monthly basis, it means that they will charge you a full month of interest, even if you have only had that tranche for a few days of the month. Again, keep this in mind as it can have an effect on the interest that you may end up paying. 

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

www.thepropertyfinanceguy.co.uk

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Heavy refurbishment products are a subcategory of Development Finance and are suitable for developers who require finance to carry out property refurbishments incorporating some structural building work or to convert a property for residential use. 

These facilities are not designed for Ground Up Developments but can normally cover everything up to this point. 

They are also easier to obtain for the less experienced Developer. 

These are the most common scenarios for Heavy Refurbishment:- 

Single dwelling – used where the client sees the opportunity to add value by increasing the usable space in the property, perhaps with an extension or internal restructure 

HMOs – either an existing HMO that requires structural changes to maximise the space available or conversions of single dwellings to HMOs 

Multi-units – either complete refurbishment of multiple flats or where planning exists to convert a single dwelling into flats/ maisonettes to increase rental revenue and/ or value

Semi Commercial – likely to be the conversion of the commercial element to residential or some heavier refurbishment to the existing residential element of the security 

Commercial – likely to be either under permitted development rights OR where planning permission has already been granted to convert a commercial property to residential or mixed use (65% max). Normally, no demolition can take place whilst on the loan. 

If the property does not require structural work and falls more into the ‘making good’ category, then this would more than likely be a Light Refurb.  

Some common uses of the Light Refurb facility are as follows: - 

Purchasing a property that requires thorough cleaning and redecoration before the property can be marketed for rental/ re-sale. 

Completing a complete refurbishment (non-structural) on a property that has been previously let with the view to re-let or sell on once complete. 

Improving market demand by updating facilities. (new kitchen, new bathroom etc.)

Specialist property client buying a property with a known issue with the intention to remedy the issue and then rent/sell the property. (i.e. Knotweed)

As long as the borrowing falls within 65% to 70% LTGDV, then the rule of thumb is that the Lender will normally do 70% Day 1 towards the purchase and then 100% of the Build Costs. 

This sort of product attracts rates from 0.64% pcm depending on the LTGDV and LTV’s taken.

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

G is for Gross Development Value. 

For Property Developers, the Gross Development Value (GDV) is one of the most important aspects that they will monitor throughout the course of a project. It helps to highlight the end valuation of a Development, Conversion or Refurbishment.

The GDV is the estimated value that a property or new development would fetch on the open market, if it were to be sold in the current economic climate. When the valuation is carried out, the Lenders will not only take into account the current economic climate, but they will also take into account the future economic climate. For many Developers and Investors at the moment, this is having a negative effect as Valuers are obviously taking Brexit into account. Which is resulting in more conservative GDV valuations. 

When instructing a Valuer to carry out a valuation on the property, the Valuer will look at current property sales prices and recent transactions in the area for similar properties. These would be carefully analysed by the Valuer, and they would then use this data to provide a comparable estimate of what properties in the same area are selling for and therefore what you could expect your property to fetch.

If, however, the Developer is not looking to sell the properties, then sales prices are not going to be of interest. Instead, establishing rental values and recent local lettings of similar properties will be of primary interest to the Developer, Lender and Valuer.

This is because on completion of their project, the Developer and the Lender will want comfort that the properties being converted/refurbed or built, will have a rental demand. The last thing a Developer or Lender will want, is empty properties! 

If refinance is the exit then the Valuer will have to look at recent lettings in the same area to find comparable rental values. This information can usually be obtained from local lettings agents.

This will help to establish how much the developer can expect to rent the properties for, which can then be used to ensure that the refinance of the properties onto a mortgage will be affordable to the Developer.

The method of development appraisal that incorporates the GDV calculation is called the residual method of valuation. This is the most common and most basic formula to estimate the general value of the site is as follows:

Land = GDV – (Construction + Fees + Profit)

In this calculation:- 

GDV = Gross development value as determined by the Valuer

Construction = Cost of Development or Conversion (Build Costs) as determined by a Quantity Surveyor

Fees = Borrowing costs and professional fees

Profit = Developers profit required to make the Scheme feasible (this is usually 20-25% as a minimum)

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

F is for Fees

Fees are always a massive source of debatewhen it comes to raising commercial finance.

When looking to raise commercial finance, you need to understand all of the fees that are involved, and how they/when arepaid. 

The one that normally takes most Investors/Developers by surprise is the lenders arrangement fee. Many lenders will add this to the loan, however,  some will ask for part of it upfront, and some mayask for the whole arrangement feeupfront. You need to understand how this is paidas it can be a huge surprise if you all of a sudden need to find 2% of the amount borrowed upfront. Always discuss this with the Broker upfront, as they need to understand if you are going to struggle to pay the fees upfront. It will help save time, as they will not go to Lenders that charge upfront fees. 

You also need to be aware of the Exit Fee of the loan. This can also be known as an Early Repayment Charge (ERC). You need to be aware if the Lender charges an exit fee, and the terms around this exit fee. Will they drop the exit fee if you redeem very early? Will they charge you a penalty on top of the exit fee? When is the exit fee due? Is it due on redemption, or if it is a Development Loan, is it due on the sale/refinance of each unit? 

On top of the exit fee, make sure that you understand if the Lender has any Extension Fees or Penalties that they will add to the loan if you run over the term. Also make sure that you understand if the interest rate of the loan will increase when you run over the term. Running over the term can be massively costly if the Lender is adding fees and increasing the interest payable.

As well as the Arrangement Fee and Exit Fee, you also need to be aware of Admin Fees, Legal Fees, Valuation Fees, QS Fees and Monitoring Surveyor Fees. Also make sure that you have accounted for Stamp Duty, as many people forget this, and depending on the size of the purchase, this can really hurt cashflow! 

These fees are normally paid upfront, and depending on the size of the development, they can often set you back a good chunk of cash. The QS and MS will normally be either the same person, or two people working closely together. You will normally pay a hefty fee to the QS upfront for them to have a look over your costs and make sure that they are correct. The QS is instructed by the Lender and will either be an internal QS or a panel QS. 

The MS will then charge a recurring monthly fee for the duration of the Development, and they are instructed by the Lender to monitor the scheme and ensure that all is progressing as it should be. They will also come out to the Development when you are looking to draw down a tranche of build costs from the development finance lender. They ensure that the works that you are claiming have been completed, have actually been completed. They then report to the Lender and you receive your drawdown within a week or so. 

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only

Please note: with the market changing so quickly due to the current Covid-19 Pandemic, the content could be out of date at the time of listening.

Email - [email protected] 

Telephone - 07951 802602 

https://www.facebook.com/thepropertyfinanceguy/

Please email me any questions, that you may have, and I will endeavour to answer them on the next podcast. Please also let me know if there is anyone that you would like me to interview, or if you would like to be interviewed yourself on the podcast. 

These podcasts are not to be used in place of financial advice. You must take independent financial advice from a qualified independent financial advisor. These podcasts are for information purposes only