Investing in an unconventional property may seem like a great way to make money from the property market. However, finding a financial institution that shares your enthusiasm can be difficult. So what are the best ways to finance that unconventional property investment you are considering?
Non standard property
Investing in a non-standard property can be a real headache. Many of the large lending institutions will not consider a property that is unusual in any way. For example, Birmingham Midshires, which is the biggest provider of buy to let financing in the UK, openly rejects unusual properties "In the interests of the borrower and lender, BM does not lend on properties where the rental income is unpredictable, such as non-standard property".
To be classified as a non-standard property does not actually take that much; for example, a building that has multiple separate flats may cause an issue to some lenders as will wrecks or properties that mix residential and commercial use.
Options for Non-Standard Property Investments
Of course, investing in standard, safe properties is a much lower risk strategy. But, many investors now feel that they want to try something different in order to gain a higher return. Simon Checkley, the founder of Private Finance, a group of Financial Advisors, has just joined forces with estate agents Jackson-Stops & Staff for this very reason.
They are now offering alternative finance for those people who want to invest in some more unusual properties. According to Simon, all that is needed is a little alternative thinking. For instance, a recent client of his was set on purchasing a property that had a section that was subsiding badly. By legally separating the 'good' bit of the property from the 'bad', a mortgage could be obtained on the good part and cash used to purchase the bad part. He said; "we created separate titles out of the non-subsiding and subsiding parts of the house and a structural engineer said that the subsiding part would have no effect on the neighbouring property...the buyer then paid cash for the subsiding wing and borrowed the money for the main house...once the subsidence had been fixed, he sold it at a good profit".
This idea of splitting legal title can also work well with larger properties, such as those in London that are often split in such a way as to allow a lower ground floor flat to be rented. By splitting the title, two separate mortgages can be obtained, a residential loan for the part that the investor is living in and an investment loan on the part that is to be rented out. Simon states: "It can be much more tax efficient because the investment loan is attached to the flat rather than the house. A similar situation applies to houses with land that is let to farmers or rented out as paddocks".
Options for a Standard Second Home
It doesn't even have to be that weird and wacky to cause problems for some potential investors. Financing the purchase of a second home can be tricky enough without any added complications. For those looking to purchase a second home the main options are either to finance it through savings, a mortgage on the second home, or to re-mortgage their main residence. A survey by Direct Line revealed that 34 percent of second home buyers will use a fresh mortgage, 26 percent will use savings and only approximately 10 percent of people will re-mortgage their main home.
Generally speaking, a mortgage provider will either want to see that the rental income will more than pay for your mortgage (if it is intended as a buy to let investment). In most cases, this will mean that your rental income should be at least 125 percent of your mortgage payments, or that you can afford to pay your mortgage out of your day to day income.
Ray Boulger who is a Senior Manager at Charcol, a mortgage brokers, says that in general most banks and building societies will offer second mortgages. However, he would also warn investors against having more than a 90 percent mortgage on any property, as this will have a negative effect on the interest rates you can achieve and will also mean that you will have to pay large indemnity provisions.
When it comes to unconventional financing, an investor has to think out of the box and explore new and unusual avenues. Just remember, where there's a will, there's a way!
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