The basics of the strategy sees landlords buying run down properties, properties with the potential for adding bedrooms, splitting into HMOs, or simple conversion works from commercial to residential, completing the work quickly, adding value in the process and then putting it onto the market for rent.
By purchasing tired properties, sometimes with a poor layout, landlords can pick up their buy to let properties at a cut price, meaning an increase in both property value and rental income is compounded, to create massively improved profit margins. Of course, a refurbished property will always be more desirable to tenants, meaning less marketing, less voids and therefore more profit, so this trend looks set to continue.
This strategy is proving popular for standard residential, commercial property and HMO landlords, with the market for property refurbishment loans expanding and lenders competing to offer the lowest rates, increasing loan to values and ever faster completions. As a result of this, the increase in margin for the landlord makes the proposition more and more appealing, as a buy to let, HMO or commercial investment property with increased profit and a happy tenant (making them more likely to stay for longer) is the ideal situation for any landlord.
What is Allowed In Property Refurbishment Finance
There is a distinction to be made between property refurbishment loans and property development finance. Of course we are able to talk you through which product is right for you on a case by case basis, but as a general guide, the works acceptable for property refurbishment finance include:-
- Full redecoration
- Replacement of kitchen & bathrooms
- Upgrade of electrics – rewiring, installation of modern cabling for commercial properties
- Conversions to HMO
- Removal of internal walls and adding new ones
- Change of use
- Loft Conversions
- Changing internal room use, relocating bathrooms etc
This is of course a guide to acceptable works, but anything more heavy duty than these works will potentially require a slightly different product and you would be well advised to talk this through with a commercial finance broker to find out exactly what finance is available before offering on the property, especially if planning on buying at auction.
The Final Word
Refurbishment finance is becoming far cheaper these days and lenders are offering excellent ‘refurb to term’ deals, which allow you to refurbish, with your term loan agreed upfront and with the same lender, meaning there is no danger of being trapped on refurbishment rates and you know the terms of your exit on day 1, giving you the full picture. As with everything in the commercial and specialist finance markets, advice should always be based on the full picture and you should always discuss your needs with a professional. If you have a property portfolio, you may be able to leverage it to purchase your refurbishment projects, which is likely to work out as the cheapest option assuming you are free from early repayment charges. At ABC Finance, we are able to assess your project in full, so contact us today to discuss your own individual circumstances.