Common Mistakes to Avoid When Financing Share Purchases

Are you looking to finance a Share Purchase for a Property Company?

This has become a popular strategy to grow a property portfolio and you can see why in our previous post, but you should be prepared to not make the common mistakes that could cost you.

Here’s what you should do:

Never Ignore the Quality of the Properties

You should be looking at the properties the company owns and not just focusing on the company itself, as lenders will want reassurance. You could look at:

• Are the properties in a good condition?
• Is the rental demand strong for them and the area?
• How many properties does the company own in total?

Ultimately, don’t just look at the company name and headline figures – are the properties a good asset and security for the lender to consider?

Do You Have the Experience

The lenders will be asking, “do you have the experience to manage these properties?” as they consider the experience within the application. Some lenders even have it as a mandatory requirement in their criteria.

If you’re new to property management, this could be a hurdle as managing a portfolio is not easy, however, we may be able to source a lender who can accept lack of experience, please speak to us.

Always Complete Extensive Due Diligence

This step is crucial so please don’t skip it!

You must check the trading accounts of the company you’re looking to purchase, for any monetary discrepancies or insolvencies, as lenders may refuse to lend.

You don’t want to be taking on a company that is in a bad position, as this will become your responsibility, always check the profit and loss statements and balance sheet before committing.

Don’t Fall for Scams

You may think you’re savvy enough to spot a scam when you see one, however scammers can be smart in their own ways.

Be cautious and verify everything before purchasing, if something feels off, ask questions and investigate further. Unfortunately, scams do happen, so be prepared not to fall.

Have a Clear Plan

Being efficient and having a plan in place is the smart thing to do in these transactions.

How will you manage the properties?

What’s your strategy for improving income and reducing costs?

Your plan should consist of managing the business and properties after the purchase – lenders will like to see that you have thought this through and you are serious about the transaction.

Never Overlook Warranties & Indemnities

Warranties & Indemnities cover you for things that could potentially go wrong after the purchase has completed such as, legal issues or hidden debts.

So, you must perform research on the warranties & indemnities from the seller before going ahead.

Don’t Forget About the Legal Costs

You will need to factor in the legal costs into your budget, as they add up quickly.

You will need a solicitor for the Share Purchase Agreement (SPA) and the lender will have their own solicitor for the mortgage – you could be liable for both costs.

How can Advocate Finance help?

If you’re considering a Share Purchase for a Property Company, getting the right advice early can save you the wasted time and money later on. Here at Advocate Finance, we have a team of experienced property finance advisers who can help advise you on your options.

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