Refinance – What Can You Do To Get Best Deal?

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    refinance

    MIMO deal, have you heard about it?

    Proper refinance of property can make it happen.

    In property investment world it is, Money In Money out or earn money without none of your money left in the deal.

    Infinity ROI is another way of putting it where you are making money while you have taken all your cash out or in other words none of your money is left in the deal.

    Is it even possible?

    If you look hard enough, there are MIMO deals. The fact of the matter is even if it is not a MIMO deal, if you get your refinance process right, you can get most of your money out.

    Why not get better Return On Investment (ROI) compared to interest offered by the bank, or any other investments?

    Here is a stat:

    According to the Financial Conduct Authority(FCA) report, the value of gross mortgage advances grew 5.5% in the year to 2018 Q4 to £72.9 billion.

    Overall investors are playing the game of pulling money out the property where possible and reinvest.

    Best income starts when money starts creating more money

    Numbers Example:

    This is not a post on Numbers but here are sample numbers for a MIMO deal

    Purchase price: £45,000
    Refurb: £12,000
    Legals and Others: £3,000

    The total cost of purchase: £60,000

    Refinance: £80,000 @ 75% Loan to Value(LTV)

    Money paid to your account £60,000 (this is the same as the cost of purchase)

    Effectively once the property is rented, you will start receiving net cash flow, assuming numbers work without none of your money left in the deal.

    Now:
    In this article let us see what can be done to get the refinance number to £80,000 or higher so that you get all your money out or get some more just because you have invested in the right property.

    Must Read: Offer On A Property: 7 Key Things To Include In Your Property Offers System

    Before Refinancing

    Thought of refinancing MUST start the day you are purchasing the investment property.

    As a property investor, you think of “Done Up Value” first and then give the offer based on the done up value.

    Once your offer is accepted and completed on a property, think of the type of pictures you want to take. These pictures will be included in the refinance pack.

    Pictures

    Before, during and After Refurb:
    How to show the amount of work involved and carried out. Try taking pictures from a specific location in property to show how the property is transformed, before, during and after refurb.

    After refurbishment is completed, if the property is empty, dress the property before taking pictures and if possible, leave the dressing till the day of refinancing.

    Capture external pictures of the property as well, to identify the property.

    Ensure there is enough lighting while capturing pictures.

    Top Tip:

    If your letting agent has good photographer, once they advertise the property on letting portals, download those pictures for after refurb pictures.

    Must Read: 10 Property Renovation Mistakes To Avoid As A Property Investor

    Finances

    Discuss with your mortgage advisor/advisors for the options available. Check for the deals that will work for you, based on interest rates and any additional fee that you may need to pay.

    Credit Score: Check your credit score and make sure you have a good credit score before refinancing. I wouldn’t say it is a show stopper, but having a good credit score can help you get good deals.

    Mortgage Insurance: In the process of refinancing, overall debt would increase. It is a simple fact that if the mortgage is not paid, the property will be repossessed. Plan with your financial consultant and ensure that mortgage will be paid even if you are not able to earn your monthly payments so that the property is secure.

    EPC: Check that the property has a minimum of “E” rating if you are applying for Buy to Let mortgage. You can check it for free at EPC Register.

    Tip on Valuation Survey: Lenders may charge fees for valuation survey. If there is a vendor who wouldn’t charge for valuation survey and overall if the deal is working out, try using them first. That way, you know how banks are valuing your property for free. If the agreement is working out you can continue with the deal they give.

    Top Tip:

    Create the refinance pack when the refurb is completed, as you have all the relevant pictures and information. If you leave it till the day of refinance, one or two years down the line, you will struggle to get relevant pictures, schedule of works and other information require.

    Create the pack and store it in your portfolio document repository for future reference.

    Must Read: Angel Investment: Raising Investment For Growing Your Property Portfolio

    For the day of Refinancing

    Access to the property

    Ensure access to the property is well planned. You don’t want to annoy the valuation surveyor.

    If the property is let out, discuss with your letting agent or tenant if you are managing the property.

    If the property is empty, make sure you have the right set of keys. When you are managing a portfolio, it is very easy to get confused.

    Refinancing document

    Refinancing document is a must.
    Keep this document as a simple 2-page document with the following content:

    • A summary of the property.
    • Address of the property.
    • Cost of purchase. This could include purchase cost, legal and any other costs incurred
    • Schedule of works: Give as much detail as possible about the costs incurred and the payments made.
    • Pictures that were taken before, during and after refurbishment.
    • Sold comparables within quarter of a mile to the property for a similar property. e.g. if the property is 2 bed terraced, try and find sold comparables for a similar type of property.

    Top Tip:

    Make sure this document is formatted neatly and kept in a folder ready to be handed to the property valuer.

    Document content should reflect based on the type of property. Content for HMO would be different from content of Buy to Let property.

    Schedule of works

    Refinance document should instantly show why the property is worth the amount you have asked. If you think additional detail about refurbishment is required along with refinancing document, include that in the schedule of works which was agreed with your builder.

    Feel free to include any other supporting document, e.g. lease documentation

    After Refinancing

    Based on the current economic situation(e.g. Brexit uncertainty or any other factors), valuers may downplay the value of the property.

    If the value is too low, I would recommend to either contest the valuation or even try out a different lender.

    After the completion of the refinancing process we get the well deserved money into our account.

    Now what do we do?

    Apart from partying(Joking), it is very important to address the following:

    Repay Angels if money is due to be paid. It will increase their confidence in you and are likely to reinvest again in your business.

    Debt consolidation: I’m sure as business you have a list of debts for which interest is being paid. As a director, if you have taken personal debts for training or refurbishment, now is the time to pay them off.

    Re-Invest with any money left on top after debt consolidation and repaying angels.

    Conclusion

    It is very important to try and use as many of the above tips mentioned to get the valuation you require during refinancing. Remember to keep improvising based on yours and others experiences for every refinance.

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