So you’ve been left a property either as a gift from your parents or in a will or something along those lines, and you want to raise finance against that property because it’s unmortgaged.
You want to use that finance to go forward and help you with your property portfolio creation and also you want to turn the property that you’ve been left into a buy-to-let rental.
On the surface of this sounds quite straightforward, however, it can be very challenging.
At the moment, there are lenders that are happy to do it, however they have all sorts of criteria that they need to be in place. For example, a lot of the lenders would require that the property is empty and is vacated by your parents or whoever has left the property to you before they would lend on it.
That’s not a problem if they have vacated the property, only if they are not ready to move yet that could be a challenge. They may be waiting for the place they are moving to , to be ready.
It may be a new build, it could be in a chain or it may need some work doing to it.
There’s also the fact that you have to make sure that the property has been left to you without any inheritance tax.
If it’s been gifted to you when you are their child and it’s under the threshold of inheritance tax, then there probably won’t be any inheritance tax to pay.
So that’s good news and no stamp duty either, you should be able to raise finance against the property. Please check with your tax adviser on this as I am not a qualified tax advisor and can only tell you what I have done.
Your tax adviser will be able to give you all the correct and current information.
Your next challenge here is that you won’t have owned the property for six months.
I am assuming you are going to raise the money straight away.
While there is not always the 6 month rule in place, some of the lenders are requesting that you actually can prove that you own the property.
Once the property has been transferred into your name, they would want some kind of evidence that it is on land registry that you are the owner.
Land registry is taking quite a long time for it to update currently. I have had a 6 month wait for a recent transaction to show up.
You may have to ask your solicitor to get involved and help you with that.
Your solicitor can confirm your date of ownership and when they sent off the registration documents.
On the whole, it is worth considering this strategy.
Of course, you still have to do your numbers.
You still have to make sure that the property that you’ve been left, if you’re raising finance against, will actually still create a cashflow for you once you’ve raised the money.
Then you can move on to buy whatever other properties you have found.
For example, you may want to raise £100,000 against the property.
if you have a 6% mortgage, you will have monthly payments of around £500,
so, your rent must be at least £700 or £800 a month to make it worthwhile doing.
And then you can take that £100,000 and go on forward to buy more properties and use it as your deposit and your do up money.
Potentially you could pick up three or four buy-to-let properties with that money if you were to buy correctly.
Here’s a very brief idea of how the numbers should work:
Loan amount against he inherited property £100,000.00
Interest rate 6% gives you a monthly payment of £ 500.00
Rent per month on the property £ 800.00
Agents Fees are 12% of the rent per month £ 96.00
Other cost at 10% of the rent per month £ 80.00
Rent £800
Loan payments -£500
Agents Fees -£ 96
Other costs -£ 80
—————————————–
Cash flow per month £124
You might think that this is not a lot of cash flow, However the £100,000 you have released could now go on to allow you to buy 4 more small buy-to-lets each producing £200 per month cashflow.
So your £100,000 is earning you 4x£200 + £124 = £924 per month
Now that’s very good isn’t it ?
Remember though you must do all the correct due-diligence and have negotiated great deals in the onward purchase for this to all work.