With property investors looking more towards higher yielding properties such as HMO’s and multi-let properties, the subject of investment valuations is  regularly a topic of conversation.

Before you understand investment valuations you need to understand the most common type is a valuation based on vacant possession. This type of valuation assumes the value of the property is empty of any tenant in the property and what the property would be sold for based on just the “bricks and mortar”. You will sometimes hear  the term a “bricks and mortar valuation” but the correct term should be Vacant possession.

Investment valuations differ in that they consider the cashflow a property is producing from rent. An allowance is usually made in the cashflow for rental voids and landlord costs but once the net rent is calculated then the valuation is calculated against a typical yield that an investor would expect as a return on the property. The yields vary depending on the risk and can be from 6% to 12%.

The lowest yields are typically associated with low risk tenants (ie a bank that is a tenant for 20 years renting a high street premises) and the higher yields would be associated with more riskier tenants, where there is a higher chance of voids and non payment of rent.

When does an HMO obtain an investment valuation instead of a vacant possession valuation

This depends on the property in question and can be better explained by looking at two examples of HMO’s

Example 1 – A residential property over 2 storeys that is let to 4 tenants on multiple tenancies. This is technically an HMO once it is let to 3 or more households.

However the property didn’t  need a change of planning permission to be a HMO and doesn’t need a HMO licence because it is only 4 tenants. In the example the property is likely to be valued on a vacant possession basis because the core characterics of the property have not changed from a standard residential property.

Example 2 – A residential property that has been converted and extended and has 3 storeys and 7 tenants in the property. The property has a planning classification of an HMO which is  ”sui generis” and also has an HMO licence in place. The property is fully let and producing a rent of £30,940 per year. In this example the property through the change of planning and the HMO licence has changed from a residential property to an HMO and should therefore be valued on an investment valuation basis.

These two examples illustrate the differences and if you have any questions, feel free to call us to discuss your specific property.

The National Association of Commercial Finance Brokers have linked up with the largest independent broker in the UK to provide business owners will cost effective insurance cover.

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On the 7th April 2011, a relaunch will take place of Whiteaway Laidlaw Bank (WLB). Although established as far back as 1944 and as a licensed bank in 1971, it was only ever a very small regional lender.

During 2011 it was acquired by RBS equity finance and has had a significant capital injection into it. In addition last month it acquired the new business activities of Commercial First a lender that grew its mortgage book to over £2 billion within a 6 year period.

The new management team at WLB has some very large growth targets for lending, which is good news for SME customers and property investors. Advocate Finance are pleased to announce that they have been chosen as one of only 50 brokers across the UK to be able to transact with this new lender.

WLB will lend on all types of residential investment, Semi-Commercial and Commercial properties across all types of applicants (including ltd companies) and have no existing exposure limits, so can bring fresh lending to customers.

In addition they are launching with some interesting products such as interest only and part capital repayment products that can bring repayments down significantly.

For more information on this exciting initiative, please contact us on 01206 544333

I was very impressed with the professionalism. They advised on a strategy to raise 100% finance and then assisted though to completion – Shah Islam Leigh Lancashire

Advocate Finance were extremely professional and pleasant. I can even say had they not been involved the deal would have not taken place – Phil Mclaughlin MD – Romford