Commercial Back To Residential

user1977

hulme03 said:

MWT: The business is a partnership with my mum 

This seems to be the only mention of your mum among all the first person singular posts - so is she coming along with you on these plans, or are you planning to buy her out at an earlier stage?

MWT

user1977 said:

hulme03 said:

MWT: The business is a partnership with my mum 

This seems to be the only mention of your mum among all the first person singular posts - so is she coming along with you on these plans, or are you planning to buy her out at an earlier stage?

... and they should talk to their accountant about CGT liability as this is a partnership asset...

silvercar

"However, they said their underwriters might consider a loan if it was to remain within a business model.
i.e. an account was set up for the receipt of the sale income which would then be used to purchase further premises to sell, classing it as a business portfolio.
They said, without this, the commercial benefit for the lend would be low and wouldn't be considered by their underwriters.
This idea doesn't fit in with what I want to do though.

Never look a gift horse in the mouth. You are being spoon fed the words to make this work. Once you have this development completed and the properties sold, you could decide to do a similar project or cash out. If you want to do a similar project the funding is in place. If you want to cash out, you have the money to repay the loan and can walk away.
Never look a gift horse in the mouth. You are being spoon fed the words to make this work. Once you have this development completed and the properties sold, you could decide to do a similar project or cash out. If you want to do a similar project the funding is in place. If you want to cash out, you have the money to repay the loan and can walk away.

hulme03

user1977: Hi, sorry for not mentioning my mum earlier, didn't think it would be that significant when we're just trying to get some advice. She's 80 and still working in the cafe and she's ready to retire! My mum wants us to sell (one way or another) more than I do in fact. So she is fully in on the plans but you're right, no more first person singular posts.

MWT. Hi, we did speak to our accountant when we had the offer for the property of £210.000. He told us we would end up with approximately £180,000 after fees and CGT. So, yes, we're aware of CGT liabilities.

silvercar: Hi, I initially read between those lines too. We can't lend you any money but if you pretend you're going to re-invest it in property then we will do. However, they've since said they want,,
"A clear understanding of what the commercial justification would be of the funds being lent from a business/SME portfolio to you - essentially why does the business need the funds, what would it be spent on, how would them funds be reinvested - how would the Bank from a business customer lend perspective benefit, opposed to this being financed personally."
This was part of an email which is also asking us for 6 different documents for security, verification, financial assessment, commitments etc.
And then the icing...you've got to come up with 40% and spend that before spending our 60%!
This is from a bank we've banked with since January 1989, never missed any payments and never gone over our overdraft limit, which is only £2,000. 
I'm not sure if this is the norm because I've not done this before but it seems to me like they just don't want to lend us the money.
They even answered one of my questions with..."We don't offer bridging finance/loans - there are other lending providers out there that would, and that would be their sector excellence to provide that type of lending."
So I'm not sure about spoon fed or gift horse but I appreciate you didn't know all these facts before.
I would like to know if we would have to jump through all these hoops for any potential lender to lend us 100% of £100,000 when the property is potentially worth more than 4 times that.

Thank you for all your replies.

K_S

@hulme03 There are quite a few ways you can potentially do this. Given that the current property is unencumbered, the numbers are in your favour.

The first would be some form of development finance. If you were purchasing the site, the numbers to keep in mind are - current/Day-1 value (100k), build costs (100k) and final value of the completed property or the GDV (400k?). You will pay the lender for a valuation which will come back with the above numbers after visiting the site and reviewing your plans for development.

For dev finance, if they're happy to lend, lenders will usually consider lending up to x% (around the 50-70% mark typically) of the current value and 100% of the build costs. There are cases in which lenders will consider lending up to x% on the GDV, but you don't need it anyway.

The second would be securing 100k against a residential property that you own, either your home, a BTL, etc. You can then use these funds for the work. This could be in the form of a further advance with your current lender (if any), capital-raise re-mortgage if unencumbered, or a second charge mortgage, etc. Using a first-charge mortgage against your own home, the number of lenders that will lend for this purpose is low but you only need one lender. With a second charge mortgage you'll have a higher choice of lenders but it will cost more than a resi mortgage. In these scenarios you will need an income that is sufficient to service this mortgage (as per lender calculations).

hulme03 said:

Hi.
I have a cafe and shop which was converted from 2 terraced houses some time ago.
I am now looking to convert the commercial premises back into 2 terraced houses.
I own the property outright but don't have the money to finance the work needed for the conversion.
A similar property on the same road has recently been sold for £225,000.
I have had a rough estimate from a design and build firm of £80k to £100k for the work to be done.
I have discussed the situation with the bank I have had a business account with for over 34 years.
They said they were unable to give me a loan as the business would be closed from the day that the work begins and therefore there would be no income from the business.
However, they said their underwriters might consider a loan if it was to remain within a business model.
i.e. an account was set up for the receipt of the sale income which would then be used to purchase further premises to sell, classing it as a business portfolio.
They said, without this, the commercial benefit for the lend would be low and wouldn't be considered by their underwriters.
This idea doesn't fit in with what I want to do though.
I just want to borrow the money, get the work done, sell the houses, pay back the money borrowed and any fees and taxes and then semi retire with the profit made.
So, I would like some advice on how I would go about borrowing the money to do this.
Any advice would be greatly appreciated.
Thanks.
Lee.

hulme03

Hi K_S.
Thanks for the reply, this was the kind of advice I was hoping for, save me wasting time going round in circles and becoming demoralised. Like asking my bank for example.
I presume your first suggestion of development finance is what you would recommend I try first.
Thanks again.

hulme03

K_S.
Also, would a development finance firm usually expect me to put some money in myself?

ACG

Bridging/Development are more or less the same thing. Both are generally short terms loans at higher rates. 

They are not really things normal banks can help with, it would be smaller lenders and small banks not on the high street that do that type of finance. 

hulme03

Thanks for the info ACG.
I know there's more than enough equity on the property we have but would we still be expected to come up with some money ourselves in order to get the finance off these smaller lenders?
Thanks

ACG

No, their safety net is the equity remaining.