UK Landlord Forum / Life

I have a fair amount of equity in my rented house (£40k ish). I have seen what is, in my opinion, and amazing redevelopment opportunity near me. (3 bed bungalow with amazing views over old sarum in salisbury, vacant possession due to owner passing away) however it needs a LOT of work. But a facelift and garden makeover would make this an amazing buy for someone.

My question is, would you remortgage a property you own up to the hilt to fund another project in the current financial climate?? Is it worth the risk?

something to bear in mind is i am still in a 2yr fixed rate on my current mortagage (until sept 09) as i only started renting in feb this year. I dont have a buy to let mortgage right now but when i renew in september i will have to move to one. should that affect my decision?

It depends on the percentage of equity you have. £40k in equity is a lot for a property worth 100k, but not for a 500k house.

A lot of lenders require 25% deposits right now, so If I were to release equity, I would always make sure I had at least 25% left in the property.

So I guess I would release equity for a great opportunity, as long as I'm leaving at least 25% of equity in the property.

Hope that makes sense.

Cheers propertyFag. My house is worth just over 100k at the mo so yeah im currently over 25% equity. but a remortgage would not leave me 25% so i take on board what you are saying. Also i have a fair bit of debt at the mo so i was always in two minds about the sensibility of making a move like this (intention was to make a quick profit and get rid of my debt). But i think its probably too high risk right now, plus i phoned the estate agent last night and the bungalow is sold subject to confirmation.

Im still keeping my eyes open for bargains just in case!

Yeah, it's a bit high risk at the moment, especially with the credit crunch. I would personally wait until next year...

But yeah, always look out for a bargain. With repossession rates at a high, there are a lot of bargains around these days...

Yes Graham i would remortgage to fund a second project,  if i knew the 2nd property would sell for more than i brought it for and cover the remortgage with a little left over for my time and effeort i would do it at the drop of a hat.
It will be empty for a while yet im sure so just sit on it for a few months and see what happens, if you lose it due to just waiting there will be more !

Yes,
I agree with you. Now a days real estate investment is the best option then any other kind of investment. I would like to tell you that when my friend had invested in real estate he was also not sure of the profits there but he recently had his real estate deals from IRA-401K
and he was quite pleased with his investing. There are many things that you can look up in investing in real estate and I think that it will be profitable for you too.
Good Luck!!!

Hi Graham

When you look at any opportunity I suggest you work backwards. Here is how I would evalute your deal if I was looking to buy.

1) look at the finished product - I assume it would stay as a bungalow - if so what is the market like in your area for selling bungalows or letting them out.

2) If you can do the development and want to sell make sure you can sale at a price below anything similar in the near area. As a back up strategy, can you refinance pull out your investment or loan and let the property for a monthly cashflow of over £100 per month.

3) If you can not answer yes on both counts for point two I would walk away. Because you need more than one exit strategy in this market.

4) If you have answered yes to question 2 - then you need to think about finance - is the property habitable if not you are unlikely to get a buy to let mortgage. If yes you can finance using some of your equity from your house, but I would agree with property fag and limit your refinance to more than 75% loan to value.

5) You need to get an accurate costing for the building works and the timeframe for doing. This is really important and by doing your sums right here, your finance options open up. The cheapest method is for you to provide the deposit, purchase costs and refurb and then you can refinance them out after the work is done - subject to valuation and time of ownership. Alternatively if you can bring the project in below 70% of the end value (the purchase price, build costs and interest add up to less than 70% of the end value) you can get finance to cover the whole project and you pay nothing until you sell or remortgage. If you have an exit strategy ie the remortgage this strategy is more than possible.

6) As a final note the valuation process can be different depending on the type of finance. The last example I gave above, normally comes with a 90 day restricted value - meaning the valuer will value the property now and at the end based on a sale being achieved within 90 days. These figures tend to be 10-15% less than a market valuation. Also values tend to be based on comparable sales not whats on the market. Use rightmove or nethouseprices to check out prices on sales

Hope that helps

Chris

According to my financial status to fund my second property, I would use the equity from my first property totalling $105,000 (20% of $525,000, so mortgage is at 80%) + the $50,000 in shares. Giving a total of $155,000.This will be the total statistics i will be considering is this correct.