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.