Funding property development

Knightofni

Hi all,
I hope someone can provide some info on how "property developers" fund their purchases. It sounds obvious but I'm hitting a brick wall. My partner and I gave up our boring jobs, went travelling, and now returned to England with an aim to make at least a small living from property development. Having gone to a couple of brokers however I'm being told that "mortgages arnt really the way to fund property development"...and Buy to Let mortgages have a minimum term of normally 12 months so not good for developers. I'm also being told that as I have no employed/self employed income (only rent) there arnt many options for Buy to Let either. I'm fortunate to have a home with about £130k of equity and a second house which I inherrited and own outright worth about £160k. So I have equity, but this doesnt appear to help. Do property developers normally use mortgages or bank loans?
Thanks in advance

anselld

Commercial mortgages are available at a price, but you should be able to ...
(a) remortgage your residential property to release equity
(b) btl mortgage your unencumbered property to release equity

edit: sorry just re-read that you have no joint income so (a) is a non-starter, but (b) should be possible if you are getting a decent rental return

anselld

... or sell a few expensive shrubberies!

Knightofni

Thanks Anselld...I think the shrubbery option may be the only option!!:) There appears to be a couple of lenders who would let me take out a BTL to the value of around £120k on the unemcumbered property. But then how would I fund the new property...I could buy it outright as long as it was under £100k (retaining some of the money for renovation costs) which is fairly unlikely. Its how I could use this released money to fund the next property that seems to be the problem. I could take out a BTL on the next property but it would have a minimum tie in of 12 months. The developers I see on all the lovely TV shows seem to sell on in under 12 months...so I guess they dont use mortgages? I'm confused.

Doozergirl

Business bank. We can borrow with either a business overdraft or loan secured against a property.

Obviously, you need to have a deposit and enough money left over to either do the work or raise the value enough to borrow again.

Loan to value is pretty low and borrowing rates pretty high, but it's a high risk business and they're doing their best to mitigate.

Thrugelmir

Sell one of the properties and give yourselves some working capital. Along with some money to live on while you get the business established.

Knightofni

Thanks Doozergirl...can you recommend a good business bank for this type of funding? I have been to a couple of small business advisors and accountants and they are saying that at present I wouldnt be self employed and any profit or loss would be classed as "investment" income. I imagine I would need to set up as self employed or a Ltd in order to get a bank loan?
Thanks Thrugelmir. I had contemplated selling my other property however it is currently let until at least March 2014. My home has a low rate residential mortgage on it which I cant port to another property as I dont have a high enough income.
Can anyone recommend any sites or info sources on property development funding. We see loads of programmes and books on the subject but they only appear to touch on the subject of funding.

anselld

Knightofni wrote: »

I have been to a couple of small business advisors and accountants and they are saying that at present I wouldnt be self employed and any profit or loss would be classed as "investment" income.

That is true of your current circumstances, ie owning a rental property. However, if you are planning to move into the buy-renovate-sell type of business then this is classed as trading rather than investment. Profit on sale would be taxed as income.

Thrugelmir

Knightofni wrote: »

We see loads of programmes and books on the subject but they only appear to touch on the subject of funding.

You'd need to put a business plan together and approach a bank for commercial lending. You'd need to offer security for any borrowings.

Doozergirl

Knightofni wrote: »

Thanks Doozergirl...can you recommend a good business bank for this type of funding? I have been to a couple of small business advisors and accountants and they are saying that at present I wouldnt be self employed and any profit or loss would be classed as "investment" income. I imagine I would need to set up as self employed or a Ltd in order to get a bank loan?
Thanks Thrugelmir. I had contemplated selling my other property however it is currently let until at least March 2014. My home has a low rate residential mortgage on it which I cant port to another property as I dont have a high enough income.
Can anyone recommend any sites or info sources on property development funding. We see loads of programmes and books on the subject but they only appear to touch on the subject of funding.

We bank with Lloyds Bank. We've had the same manager for 10 years or more. I remember when the rates went up, H asked our bank manager "Don't we get a better rate as a reward for loyalty and reliability?" The managers reply was "We're lending you the money full stop, that is the reward".

I don't know if that has changed now!

Pthree

I work for a property developers and the past few years have been really tough, we have had to go the down the private funding route until very recently when there have been lots of phone calls saying basically "hey take our cash its really cheap, but your directors ( and shareholders) have to guarantee the loan and we want hundreds of thousands to organise this loan and the interest is crippling" and this is with 20yrs + of fairly successful projects.

Barclays are lending again as are Lloyds may be worth ago. Unless you can go for something short term then you could try somewhere like United Trust Bank but they are expensive.