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Periodically, we come across cases that we believe property investors would be interested to learn about. The summary below is one such case. We hope you find it helpful.
The Properties
Within this portfolio of properties, there were 9 HMOs that the client was looking to purchase at a discount on the market value. The HMOs differed in size:
• 2 X 4 bed HMOs
• 5 X 6 bed HMOs
• 1 X 7 bed HMO
• 1 X 9 bed HMO
All of these HMOs are let out to students, due to them all being located close by to the university in the area.
For many lenders in the market, there was too much complexity to these deals for them to get comfortable with and lend on. Therefore, the level of expertise required to find a solution is far greater than the knowledge needed to place a deal for a simple BTL mortgage.
Fortunately, here at Advocate Finance, as specialist advisers, we were able to complete the above case with very few issues from start to finish. The key points are as follows:
Client Background
Our client had 20+ years of experience as a landlord, but this was 20+ years of experience managing a portfolio of only 3 properties, none of which were HMOs. Outside of managing these properties, the client had a very high personal income, a strong asset/liability statement, and a large amount of savings, with some of these savings being used to go towards the deposit for this purchase.
They wanted to start growing a large property portfolio, with this purchase being the first of hopefully many.
Client’s Requirements
Our client wanted to purchase this portfolio of student HMOs for a total price of £2,334,500. They estimated the market value to be £3 million, which would equate to a 22% discount.
The HMOs generate a combined total of £298,000 a year in rental income.
They wanted to use the most cost-effective way of purchasing these properties, which also meant they didn’t have to wait 5 years to refinance based on the market value and extract some of the funds used for the deposit.
Part of the deposit was being provided via a third-party investor in the form of a profit share agreement, which we would need a lender to approve. The investor had no interest in owning or managing the properties; they just wanted a good return on their investment.
Solution
After speaking with the client and understanding what they wanted to achieve, I reached out to the appropriate commercially minded lenders that can lend on these sorts of scenarios with a full client/property referral, so we knew exactly what options we had to choose from when presenting the client with the quote.
Most lenders were concerned about the client’s landlord experience in relation to what they wanted to buy. However, we were able to gain an exception from one lender based on the client’s very high personal income and the fact that once purchased, the client would be using the same managing agent who has been managing these properties for the last 5+ years.
We proceeded with the application and instructed the valuation. The properties were valued lower than expected at £2,675,000 in total, but above the purchase price of £2,334,500 this was still a 13% discount.
This lender was able to provide a 75% loan to value on the purchase price, which equated to a loan of £1,750,875.
This loan was issued on a 2 year fixed rate; in 2 years time, the client will have built up 2 years HMO experience, which meets the majority of the lender’s experience requirements for HMOs with the view of refinancing each HMO onto its own mortgage, but with the lending based off the market value which should allow the client to capital raise some further funds.
We were also able to benefit from a o.4% reduction on the interest rate by combining all 9 properties onto one portfolio mortgage; this pushed the total loan size over £1 million and this lender offers cheaper rates on loans over £1 million.
Client Feedback
“Having found a great BMV portfolio, I wanted to find a broker that could find the best finance solution for me, knowing that I specifically wanted to refinance out the discount asap and get my funds reinvested and back into play with another transaction asap.
Henry was recommended to me and from the outset he understood what I needed which included a lender that would allow investor finance and a 2yr fix product with low ERCs. Once we found the solution, Henry continued to build trust as he helped me through every step of the process; was very proactive and worked quickly and efficiently. In the end, the transaction took longer than I wanted to complete, but I suppose when buying 9 properties at the same time it’s not 9 times as long as a single, but somewhat more complicated, most of the delays were with solicitors to be fair. Overall, I’m really happy with the product Henry found, the service I received and of course the outcome, and already have him looking at the next one, an 8 property portfolio.”
How can Advocate Finance help?
Are you interested in purchasing a portfolio of properties? Is there a discount involved? Or do you already own a portfolio that you would like to refinance? No matter the property type, we can assist and find you a solution to meet your needs.
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