Landlordguru Posted June 2, 2011 Report Share Posted June 2, 2011 Hello, new to the forum (and to btl). I have seen a ready-made portfolio of 4 flats in Epsom, Surrey which are for sale for a total of £374,950. Current rental income is just over £29k, which is obviously a great yield. The flats are recently converted/refurbished and, though small, each have their own kitchen and boiler etc. I think I can get a yield of around 17% with a 75% ltv (before repairs and agency costs). A few questions for experienced landlords among you: 1. The properties are above a cafe and I've been told that this may affect lending... Is this true? 2. Is it possible to get a btl mortgage of ltv 75% or more? My cash is limited, so the higher the better! 3. What would be the right level af repairs for a newly refurbed small flat? Thanks in advance for your help Link to comment Share on other sites More sharing options...
Mortitia Posted June 2, 2011 Report Share Posted June 2, 2011 Hi Landlordguru, I have yet to find a lender who will lend for properties over C3 (takeaway/restaurant) outlets. Why, I hear you ask - well it is a big fire risk seems to be the main reason. Even if food outlet has gone to some other use the fact that it had C3 is a killer. Four letting units in Epsom for that price is tooooo good to be true and the 'no mortgage provider' will be the reason. Vendor will be looking for a cash buyer. I think point 3 is out the window until you have cash. Incidently 70% LTV is what most banks are working on right now with the value estimate provided by their own surveyor - so it won't be the same as an agent but somewhat lower I am finding. Mortitia Link to comment Share on other sites More sharing options...
Grampa Posted June 2, 2011 Report Share Posted June 2, 2011 Also I believe that if the flats are above commercial and the floor area of the commercial is over a certain amount the leaseholders do not have the option to go down the "right to manage" route. Link to comment Share on other sites More sharing options...
Landlordguru Posted June 2, 2011 Author Report Share Posted June 2, 2011 Thanks Mortitia. Sounds like it might be out of the question for me, but I'll check the usage of the cafe. Seems a bit strange for lenders to refuse when, presumably, they'd be covered by buildings insurance. Link to comment Share on other sites More sharing options...
Melboy Posted June 2, 2011 Report Share Posted June 2, 2011 I would be very surprised if you can obtain a mortgage or a lender on the flats as described. I would go with the "cash buyer" as a reason for their cheapness in an area of high property values. Come back to us and let us know how you get on please. Mel. Link to comment Share on other sites More sharing options...
Landlordguru Posted June 3, 2011 Author Report Share Posted June 3, 2011 So, ongoing saga. I enquired about the usage and apparently it's A3. Is this different from C3? Sorry to bombard with questions, but I'm new to this, and haven't had a chance to talk to my mortgage rep yet. Link to comment Share on other sites More sharing options...
Richlist Posted June 3, 2011 Report Share Posted June 3, 2011 The answer is yes. According to my list of commercial property classes.... C3 = Dwelling Houses....... small businesses at home, communial housing of elderly and handicapped. A3 = Food & Drink.....restaurants, pubs, snack bars, cafes, wine bars, shops for sale of hot food. Link to comment Share on other sites More sharing options...
Melboy Posted June 3, 2011 Report Share Posted June 3, 2011 Thinking about this........... S'funny how the world has moved on when it comes to flats above shops..... When I was a Young Blade many years ago in the last Century I lived above a Butcher's shop or at least I rented it and I have to say it was pretty barren and run down and also it was very cheap but it was also home for a while and the added bonus was the Butcher always gave me 2 pork chops on a Friday. Perhaps we were not so fussy in those far off days. Mel. Link to comment Share on other sites More sharing options...
Gee Posted June 6, 2011 Report Share Posted June 6, 2011 Hi, The answer is a lot more simple, the majority of mainstream lenders have a guidance manual for the surveyor as to the type of property upon which they are NOT prepared to advance a mortgage and one of them is flats above commercial premises. The surveyor has no discretion, it is as they say 'written in stone' and has been for as long as I have done that job (some 25 years). A mortgage application like this would normally be turned down well before a surveyor was instructed. I suspect the reason is based on sound previous experience. In deciding to lend money, the lender has to take into account the saleability of a property, should they be forced to repossess and flats above shops are normally sub prime properties that are difficult to sell, because they often located above noisy environments, have poor access through rear yards, up fire escapes, they are generally poorly maintained, have no maintenance agreements, have all sorts of legal difficulties, attract poorer quality tenants. I could go on, but you get the general idea. For the majority of lenders, it is just too much risk/hassle and so there is a blanket ban on such properties and which are therefore only suitable for cash purchasers. Lenders might lend on modern purpose built flats which may have some commercial premises on the ground floor, the defining factor being that the development was built for residential purposes but which incorporates some commercial premises rather than the other way round. My calculater tells me that the current yield is 7.7% (not 17%) which is not great for this type of property, and since the flats have recently been refurbed, I cannot see what improvements you can make to increase the yield - unless they are not all let. The answer to you final question is, no repairs should be necessary since the property has been recently refurbed. Of course, the cynic in me, when I am told a property (particularly in these circumstances) has been refurbed only hear the words 'Bodged' and would suspect everything! Mel, You are completely right (as usual), the world of residential lettings has moved on at a terrific pace, tenants expect modern flats with all the facilities and new or modern fixtures and fittings. I suspect your flat above the butchers shop didn't have a concierge, en suite, fitted kitchens, wi fi, lifts, laundry rooms, fitness centres.... I have seen new trendy flats in Liverpool where the tenants move on after six months because the ash trays are full and a newer, more trendy block has just been built. Its a different world but you can see why lenders won't touch flats above shops. Landlordguru, good luck in your search for another investment. Gee Link to comment Share on other sites More sharing options...
Mortitia Posted June 6, 2011 Report Share Posted June 6, 2011 Brilliantly put Gee and some useful information there! Mortitia Link to comment Share on other sites More sharing options...
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