Buy Property At 50% of Value, let For 100%; double your yield
Why not look more closely at unmortgageable property?
Lots of property auction catalogues contain buildings that mortgage companies won’t touch. But that doesn’t necessarily mean they’re bad buys. Actually, quite the contrary.
Take, for example, any property showing obvious signs of subsidence – cracks running through brickwork and underneath or over window frames, badly aligned lintels, sills, facia boards, guttering and bays, extensions coming away from the main dwelling etc. No mortgage company will touch such places until the cause of the problem has been remedied and the damage repaired. But that doesn’t mean it’s falling down. The reason banks won’t provide finance is not because they believe that the house may fold up and fall to pieces – how many buildings have you ever seen or heard about just dropping to the ground?
Unless situated on a cliff face and undermined by the sea, or faced with a man with a big steel ball, they don’t. No, the simple fact is that a bank won’t mortgage a property it can’t repossess and sell quickly, and thus recoup its money, should you default on the loan.
But the subsidence could have happened years ago, and stopped. In mining areas, when an old shaft deep down collapses there can be an impact at the surface that can cause a crack in a wall. But it’s not going to move any further because the shaft has now been sealed. The property has come to a rest, but it’s still unmortgageable because it has a big obvious crack, the cause of which has not been investigated and resolved, a surveyor ’s report produced and the damage repaired.
But that’s great! And you should look out for these and similarly blighted properties.
Why?
Because if you’re a cash buyer interested in buy-to-let (or you can raise the funds required by a mortgage secured against your home or other properties you own) you can buy this so-called ‘distressed’ stock for, say, 50% of it’s repaired value and yet let it out for a full 100% of its rental value, thus doubling your yield. And you don’t necessarily have to do anything to it. That a property’s exterior shows signs of subsidence worthy of investigation is of primary importance to a lender, but totally and utterly immaterial to a tenant, providing the property is sound and the interior is in good order. It will not affect their enjoyment of the property one iota, but improves your bottom line considerably.
I know of investors who specifically hunt-out, by thumbing through endless property auction catalogues, this kind of opportunity, and there are hundreds sold every month to ever-eager serial landlords looking for high yields. Unmortgageable decimates the competition you’ll experience and reserves are kept very low.
Buying Unmortgageable Property and Turning Challenges into Opportunities
Introduction: Buying a property is a significant decision, and it often involves navigating various challenges and considerations. One interesting niche within the real estate market is purchasing unmortgageable properties. These properties, for various reasons, do not meet the criteria set by lenders for traditional mortgage financing. While this may seem like a daunting prospect, it can also present unique opportunities for savvy buyers. In this guide, we will explore the ins and outs of buying unmortgageable property, providing insights, tips, and strategies to help you navigate this specialized market segment.
Understanding Unmortgageable Property: Unmortgageable properties typically fall into certain categories, including:
- Structural Issues: Properties with severe structural problems, such as subsidence, extensive dampness, or significant damage, may be deemed unmortgageable until repairs are completed.
- Legal Issues: Properties with legal complications, such as outstanding liens, title disputes, or missing planning permissions, may not meet lenders’ requirements.
- Non-Standard Construction: Certain types of construction, such as timber-framed or non-traditional builds, may be deemed unmortgageable due to concerns about durability and resale value.
- Limited Leasehold Terms: Properties with short leasehold terms remaining, typically below 70 years, may be considered unmortgageable by lenders.
- Unique or Non-Standard Usage: Properties with unusual usage, such as former churches, commercial properties, or agricultural buildings, may face challenges in obtaining mortgage financing.
Overcoming Challenges: While purchasing an unmortgageable property may present challenges, there are strategies to overcome them:
- Cash Purchase: If possible, buying the property with cash eliminates the need for mortgage financing and bypasses lenders’ restrictions.
- Renovation and Repairs: Assess the extent of the property’s issues and obtain quotes from reputable contractors to determine the cost of necessary repairs. This information will help you negotiate the purchase price and plan your renovation budget.
- Bridging Finance: Bridging loans are short-term financing options designed to bridge the gap between purchasing an unmortgageable property and securing a mortgage. They offer flexibility and can provide the necessary funds for repairs or legal matters.
- Specialist Lenders: Some lenders specialize in providing mortgages for unmortgageable properties. Research and approach these lenders who have experience in dealing with challenging property types.
- Planning and Legal Support: Engage professionals such as surveyors, architects, solicitors, and planning consultants who specialize in unmortgageable properties. Their expertise can help you navigate the specific challenges associated with your chosen property.
Maximizing Opportunities: Buying an unmortgageable property also presents unique opportunities:
- Potential Discounts: Unmortgageable properties often have reduced demand, allowing you to negotiate lower purchase prices and potentially acquire the property below market value.
- Renovation Profits: By purchasing an unmortgageable property, you have the opportunity to add value through renovation and repairs. With careful planning and budgeting, you can create a desirable and profitable property.
- Unique Properties: Unmortgageable properties can be unique and offer features that are not commonly found in the market. This can be appealing to certain buyers, such as investors or those seeking a distinct living space.
Pros:
- Lower purchase price: Unmortgageable properties often come with a lower price tag, providing an opportunity for a potentially good deal.
- Less competition: Since many buyers may be hesitant to invest in unmortgageable properties, there is often less competition in the market.
- Potential for higher returns: With the right renovations and improvements, unmortgageable properties can be transformed into desirable assets, leading to higher rental income or resale value.
- Creative opportunities: Buying an unmortgageable property allows for creativity and thinking outside the box in terms of property development and renovation.
Cons:
- Higher renovation costs: Unmortgageable properties typically require extensive repairs and renovations, which can be costly and time-consuming.
- Financing challenges: Obtaining financing for an unmortgageable property can be more difficult, as traditional lenders may be hesitant to provide loans for properties with significant issues.
- Potential for unexpected problems: Unmortgageable properties may have hidden structural issues or other unforeseen problems that can arise during the renovation process, leading to additional costs and delays.
- Longer timeframes: The process of buying and renovating an unmortgageable property often takes longer compared to a traditional property purchase, requiring patience and careful planning.
It’s important to thoroughly evaluate the specific circumstances of each unmortgageable property and weigh the pros and cons before making a decision. Working with experienced professionals, such as property surveyors and contractors, can help in assessing the feasibility and potential risks associated with buying an unmortgageable property.
Conclusion: Buying unmortgageable property requires careful consideration, due diligence, and a willingness to overcome challenges. While there are risks involved, this specialized market segment also offers unique opportunities for those who are prepared to undertake the necessary work. By understanding the reasons behind the property’s unmortgageable status, exploring alternative financing options, and leveraging the expertise of professionals, you can navigate the process and potentially turn an unmortgageable property into a profitable venture. Always remember to conduct thorough research and seek professional advice before proceeding with any property purchase.
Q: What exactly makes a property unmortgageable?
A: Unmortgageable properties often have issues that make them ineligible for traditional mortgage financing, such as structural problems, extensive renovations needed, or legal complications.
Q: Can I still buy an unmortgageable property with cash?
A: Yes, purchasing an unmortgageable property with cash is an option since you won’t be relying on a mortgage lender’s approval. However, it’s crucial to thoroughly assess the property’s condition and potential costs before making a cash purchase.
Q: How can I determine the extent of repairs needed for an unmortgageable property?
A: Hiring a professional surveyor or building inspector can help you identify the specific repairs and renovations required. They will assess the property’s condition and provide a detailed report outlining the necessary repairs and estimated costs.
Q: Are there any government schemes or grants available for renovating unmortgageable properties?
A: Depending on your location, there may be government schemes or grants available to assist with renovating unmortgageable properties. Research local housing or renovation programs that provide financial support or incentives for property rehabilitation.
Q: Can I convert an unmortgageable property into a mortgageable one?
A: In some cases, it is possible to convert an unmortgageable property into a mortgageable one by addressing the issues that made it initially ineligible. This may involve undertaking necessary repairs, resolving legal complications, or making structural improvements.
Q: Should I seek professional advice before purchasing an unmortgageable property?
A: It is highly recommended to seek professional advice from experts such as surveyors, architects, or property consultants who have experience dealing with unmortgageable properties. They can provide valuable insights and guidance to help you make informed decisions.
Q: Are there any specific regulations or permits I need to consider when renovating an unmortgageable property?
A: Yes, when renovating an unmortgageable property, you need to comply with local building regulations and obtain any necessary permits or approvals. It’s essential to consult with the local authorities or a building control officer to ensure your renovations meet the required standards.
Q: What are some alternative financing options for purchasing an unmortgageable property?
A: Alternative financing options for purchasing an unmortgageable property include bridging loans, property development loans, or private funding. These options may have higher interest rates or different repayment terms compared to traditional mortgages, so it’s important to carefully consider the financial implications.