Want to Buy Old Pub (Extensive Renovation Needed)

Matty0682

Hi Folks

I posted this on the mortgage board, but had no response......my wife and I are thinking about buying an old pub that has planning permission to be converted into a 5 bed house. It requires compete gutting as a nearby stream got blocked and flooded the ground floor.

Anyway, my question is how do we go about getting a mortgage for this property. Bearing in mind the ground floor is still under 3 inches of water and is boarded up (been vacant for at least 2 years)

I guess conventional lenders wouldn’t touch as with a bargepole. So has anyone had had experience of buying property in need of extensive renovation and obtaining finance in the current economic climate? Points to note: property is water tight (roof in v.good condition) and structurally sound.

And how would you value a property in this state? I guess developers look at the value when complete, then take off cost of buying and refurbishment plus a premium (return).

Thanks:beer:

BitterAndTwisted

It all depends on whether you've got a sensible estimate of the costs of refurbishment and a decent plan of how you will finance it. As I understand it most mortgage lenders are reluctant in the extreme to lend on properties which are uninhabitable as there's no margin should they have to repossess when none or little of the work has been done which could render the property unsellable. I'd be having a very hard look at this "blocked stream" and about how flooding could be avoided in future. As it's an ex-pub it should have extensive cellars so I'd shudder to think how long it would take just to pump the water out, never mind dry the place out enough to start the work.

Are you considering trying your hand at property development or are you wanting to convert to a family home for yourselves?

Matty0682

BitterAndTwisted wrote: »

It all depends on whether you've got a sensible estimate of the costs of refurbishment and a decent plan of how you will finance it. As I understand it most mortgage lenders are reluctant in the extreme to lend on properties which are uninhabitable as there's no margin should they have to repossess when none or little of the work has been done which could render the property unsellable. I'd be having a very hard look at this "blocked stream" and about how flooding could be avoided in future. As it's an ex-pub it should have extensive cellars so I'd shudder to think how long it would take just to pump the water out, never mind dry the place out enough to start the work.

Are you considering trying your hand at property development or are you wanting to convert to a family home for yourselves?

Thanks for yr reply. We are planning to convert into a family home.

The blocked stream is a minor issue as it was caused by the council blocking it. The stream runs along the boundary line of the pub and along a public footpath. The council have blocked the stream whilst re-building the footpath (so I guess they are liable for damage).

Luckily, the cellar in on the ground floor (there is no basement).

Father-in-law is a builder and brother-in-law is a plumper, so they have estimated all the costs and will be doing most of the skilled work. I would like to know what minimum deposit we require. If we could get a 70% LTV we have pay for all the works with cash. Anything lower than 70% LTV would require doing the work over a staggered period (as we would have less cash).

marcg

"plumper" snigger. I'm not generally a pedant for spelling but this one has comic value.

Anyway, being adult about it now - you initially will need development finance rather than a mortgage. As B&T wrote, mortgage companies want an asset to sell in the event of a big mess-up and a half-finished, half-flooded pub isn't of much value. Development finance is more expensive than a mortgage since it's only supposed to be for the duration of the refurb, not 25 years - you'll need a normal mortgage when you've finished. It's exactly like running a business. The bank will want to see a business plan - basically full costs for the project as well as proof of how you intend to pay the interest costs (can be factored into the borrowing if you can't fund them out of income) but, most importantly, what you are going to offer up as collateral in the meantime. The asset used to back the loan needn't be for the full value of the loan - the pub will have _some_ value, but will need to be substantial. It might be your business premises, your father-in-law's house... This is obviously going to be the hardest bit of the puzzle to find. Even before the credit crunch, such a major project was going to need DF rather than a mortgage, so don't feel bad if you can't make it work.

To make up the business plan you really need professionals. As an architect and former development manager at a residential developer I can tell you that your father-in-law isn't what you need. Unless he's an architect/engineer/mechanical and electrical engineer (all of these), that is. You need someone who knows planning to find out whether or not you'll get change of use. If this gets complicated you might need a planning consultant rather than an architect (need to prove the old business wasn't working). Then, after planning, you'll need an architect, a structural engineer and a drainage engineer to sort out exactly what needs doing. A builder will have an understanding but will he know, for example, how to achieve part L (conservation of energy) in this change of use situation? Once all this info is collated, _then_ your father-in-law can give you a fixed price (on headed paper for the bank).

And then the bank might say no.

To put it bluntly - you need about £6k in fees just to get the business plan together.

None of which should put you off - it's a lovely idea and all of the above has been done many times before, just go into it eyes wide open!

chappers

Is there any habitable accomodation in the property at present as development finance is very tight at the moment particularly for first time developers.
The problem i see is that aconventional lender will probably look at it and want to know how you are going to complete the conversion.
If you intend to do it piece meal then they will be worried that the property may be worth less than the initial valuation until the project is finished, so they will either want to see a sound biz plan and lend themselves or proof of how you are going to carry out the work in a timely fashion.
You need to speak with amortgage broker who has access to commercial lenders too.
If you have the cash to do the refurb and the figures all work out, you are really going to have to treat this as a development, you could look at taking an intrest only commercial loan out now and then remortgaging to a more conventional mortgage once the conversion is finished.
There are so manuy variables here it all depends on your incomes,how much hard cash you have to throw at both the deposit and the development the GDV .
Just bear in mind most lenders will want to see more than you father-in-laws back of a fag packet calculations. They will probably want to see planning permission, architects drawings , QS estimates etc.

But it does sound exciting good luck.

Matty0682

Thanks for your detailed reply and for the reality check. I will start looking into Development Mortgages.

“mortgage companies want an asset to sell in the event of a big mess-up and a half-finished, half-flooded pub isn't of much value”

I see what your saying, but wouldn’t the Development Finance Company value the pub in it’s current run-down state? So when you start work, you start adding value. As for collateral, I’m sure the in-laws could help here

I understand the need for a business plan and the professionals needed. The pub has already had planning permission for change of use into residential. The seller’s architect have made the plans for the 5-bed conversion, so I guess we need an architect/structural engineer/drainage engineer to sort out exactly what needs doing and get my father in-law to quote fixed price on headed paper

Thanks for not shooting me down I just hope it is possible.

Fire_Fox

I think you need to find out IF the council will fund any of the repairs due to blocking the stream, that is probably a negotiation job for the current owner as they may argue you would be buying 'as seen'. I don't think you will be adding much value at all until you are fairly advanced with the renovations - some ripping out can actually reduce the value temporarily. Who is going to project manage? That's a major job in itself.

Matty0682

chappers wrote: »

Is there any habitable accomodation in the property at present as development finance is very tight at the moment particularly for first time developers.
The problem i see is that aconventional lender will probably look at it and want to know how you are going to complete the conversion.
If you intend to do it piece meal then they will be worried that the property may be worth less than the initial valuation until the project is finished, so they will either want to see a sound biz plan and lend themselves or proof of how you are going to carry out the work in a timely fashion.
You need to speak with amortgage broker who has access to commercial lenders too.
If you have the cash to do the refurb and the figures all work out, you are really going to have to treat this as a development, you could look at taking an intrest only commercial loan out now and then remortgaging to a more conventional mortgage once the conversion is finished.
There are so manuy variables here it all depends on your incomes,how much hard cash you have to throw at both the deposit and the development the GDV .
Just bear in mind most lenders will want to see more than you father-in-laws back of a fag packet calculations. They will probably want to see planning permission, architects drawings , QS estimates etc.

But it does sound exciting good luck.

Yes the first floor is habitable (just), with an old kitchen.

We plan to finish the conversion within 6 months and we won’t be living there at the same time. In terms of financing it, we plan to have all the cash upfront to pay for everything (assuming at least 70% LTV).

If we need more deposit I will fund the developments by my income. Luckily I have relativity good income to contribute additional finance if needed

simpywimpy

would it also be worth double checking the insurance premiums for the building? They may class your flooding as high risk, regardless of the cause

Matty0682

Fire_Fox wrote: »

I think you need to find out IF the council will fund any of the repairs due to blocking the stream, that is probably a negotiation job for the current owner as they may argue you would be buying 'as seen'. I don't think you will be adding much value at all until you are fairly advanced with the renovations - some ripping out can actually reduce the value temporarily. Who is going to project manage? That's a major job in itself.

We have already requested if the seller is pursuing this with the council. Initial feedback it that the seller would lower asking price and we would be buying 'as seen'

The father-in-law (retired) will be PM....I know he's only a builder (has build his own house I must add), he has helped develop over 20 properties. So we are lucky to have him on board for free :T

Matty0682

simpywimpy wrote: »

would it also be worth double checking the insurance premiums for the building? They may class your flooding as high risk, regardless of the cause

Yes good point, we are still waiting for this info from the seller......but there is no harm getting a quote ourselves as well