Photo by Snug Properties

It has been another crazy month in April, but rates are starting to settle now, and the base rate meeting on Thursday voted to keep things the same, so that is another sign of stability.

This month I want to talk about growing your portfolio and what to watch out for. We have several clients who are focused on quick purchases, often at auctions, followed by a quick refurbishment and refinance, so we have learnt from this, as have they! We are seeing clients coming from mentoring and training schemes expecting to be able to achieve large portfolios quickly. While I do think this is achievable, you have got to be careful that you don’t lose it all before you start.

Training is only one part of your property journey – the litmus test is always taking those learnings into the real world.

What to consider

Profit on a deal is one thing, but cash flow allows you to fund refurbishments and move on to the next deal. Here are some potential issues to consider when thinking about your timescales and how many properties you can buy in a short space of time.

The hurdles to think about…

1. Refinancing takes a lot longer than you expect – you can purchase quickly and refurbish quickly, but it may then take three months to refinance. This means it could be six months from purchase before you get your funds back out of the deal to use again (assuming a short refurbishment).
2. Build in Land Registry timescales too, especially for first registrations. We are seeing more references being held up due to Land Registry delays, which can only be expedited when we start the refinance.
3. What if the valuation comes in lower? Most auction purchases have no flexibility on price, and that is agreed before the valuation is done. Any reduction in valuation will require a capital injection to cover the difference, or, if you pull out at that point, you will lose your 10% deposit.
4. What if the property needs a bigger refurbishment than expected once you have bought it? You need to be able to quickly obtain additional funds to complete on time. Lenders require you to have all funds available in your bank prior to completion for all works.
5. We say this again and again, but it is so important to have a fantastic, proactive team around you when you are looking to buy multiple properties. Knowing you can call upon your broker or solicitor at any time, and that they will not only react but also ensure you do not miss any vital information, is invaluable. It is also vital that any issues are dealt with quickly and alternative solutions are found at a moment’s notice. That takes experience!

Here are some examples of real situations we have had to deal with lately.

One client ran out of time on their first bridge, so after paying a late fee of £10,500, they had to re-bridge with us to avoid a second payment of the same (we did not arrange the initial bridge). They had so many problems with the build, so will not be receiving any income for at least six months longer than planned and have incurred huge finance charges during this time. This has delayed their income, as well as reduced the profit on the refinance, meaning the next deal has also been delayed.

Another client bought a property at auction for £269,500, and the valuation came in at £220,000. This meant an immediate drop in the loan available by £42,075. Luckily, they had family funds to fall back on, but otherwise this could have been a huge problem. It also meant that all the funds from the refinance were used to repay additional debt rather than fund the next deal.

We also have a very experienced client who buys a couple of auction properties a month, and for the most part, these have been smooth completions. They have a strong team around them and a reliable valuer in the area. However, an issue arose where there was a restriction on two properties which could have made them unmortgageable. Jackie was able to secure an exception at the final hour with the commercial director of the lender to get it through. This could have meant a loss of over £70,000 in deposits if it had not been resolved.

This client is also struggling with delays on onward refinances due to the Land Registry not being updated. So even though they are able to refurbish quickly, it does not necessarily help them access funds any faster. Just be mindful that cash flow tends to nip at your heels.

One other point to highlight is the overuse of investor funds. Many of our clients use investor funds successfully, and it is a great tool for growing your portfolio, but overuse can cause cash flow issues. Investors are people with lives and other opportunities, so they can easily decide not to reinvest or to withdraw their funds. Relying too heavily on them can mean that all the profit goes to them and none to you, or lead to a ‘robbing Peter to pay Paul’ scenario if they suddenly pull out.

Building strong relationships and understanding investors’ priorities and personal circumstances is crucial to growing your business.

I hope this has been useful. It is not intended to put anyone off, but I feel that sometimes reality can be skewed by social media and courses selling a dream of easy passive income – and I feel strongly that property investing is not that. Treat it like a business, and you will be rewarded.

Please book in a call if you have a deal you want to discuss or would like a more general chat about your plans here.

About the Author:

Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.