How do I use the earning potential of a property to get the mortgage?

shelovestobuystuff

I want to buy back the family home.It was my great grandparents house but my grandparent sold it and moved to the town in the early 1950,s.
Its on at offers over £595,000 but surprisingly I dont have that much money.Our house had positive equity of about £150,000 and we can get a nother mortgage for the same.But still short.
Any knowkedge on how to use the earnings potential of the property itself to get the amount we need in a mortgage.
The property has 4.5 acres and has a stable and riding school operating there now so theres income already.It is a beautiful property and could easily be used as private hire for weddings etc.
There is scope to operate a few businessess from the location.There are undeveloped out buildings so possible holiday lets also,ideas are flowing freely but how do I get this turned into a mortgage?.

merlinthehappypig

You will have to apply for a commercial mortgage on the property.

You will need to get a business plan drawn up showing current earnings and potential earnings with the changes that you propose. There should already be accounts with the riding school so you have somewhere to start.

If you aren't comfortable drawing up the business plan yourself then there are companies that will do this for you, with your input. They will value the assets, look at current earnings, advise on legislation (lots with any business, plenty more with a riding school) and so on. A friend of ours asked me to help with her business ideas for her riding school and started off with a ready made plan from a consultant. This was excellent, but did cost around £5000. In her case it was money well spent as, whilst she was great with horses, she had no idea about business. She wouldn't have got the mortgage without it.

Unfortunately, I can't remember who the consultants were, at present. If you do a search on 'equestrian business consultants' there are plenty to chose from.

The mortgage offer will be based on security ie. the land and buildings and on your ability to repay from the earnings in the same way that a residential mortgage is, but will take potential earnings into account as the business develops. They are usually more flexible, but don't expect the same deals that you would get with a residential mortgage. They are usually base rate + a fixed percentage.

TTMCMschine

merlinthehappypig wrote: »

whilst she was great with horses, she had no idea about business.

This scares me. She spent £5000 to get a mortgage. What about after - you still have to be good at running a business. We have a couple of businesses running. When doing our research for one, it amazed me how many people were tied into things they couldn't get out of. Leases etc. They thought an idea that initially sounded like their dream career move, and it becomes a nightmare. I know someone who is in the process of having her house repossesed, because of her business.

I like the idea of your business, but remember this: Just because it is a good idea does not mean it will work. You can pay someone a lot of money to make the figures work, but you really need to do a lot of research. There are hundreds of extra costs on a business, that add up. Websites, printing costs, advertising, insurance and goodness knows how many things - yours will be even more because of the nature of your business. You may have done this already but, before you even think of getting a mortgage you need to check out every wedding venue in the area, and the holiday accomodation, and do a feasibility study. Also a lot of people do a business plan, and realise the maths don't stack up and it's not possible. This is a good thing as it will save you money in the long run.
Another thing to bear in mind: Think of how many businesses are struggling out there, there are some lovely concepts that are running. They theoretically should do well, but they're struggling. Be very level headed, so you can think clearly, you have to, for your idea to have a chance to work. Are you prepared? Do you have your eyes wide open, or do you have your rose tinted specs on?

edit: ps - do you know why they're selling. Is the business side doing ok?

clutton_2

you need to talk to Planning to see if you will be allowed to diversify into weddings

shelovestobuystuff

Thanks for the advice so far.I dont know why the current owners are selling,I must ask the agent when they call me back later today.
At the moment I am just thinking about the possibilities.I have made initial contact with the agents asking for the full details,details of current business activity on the property and further details of any existing planning proposals for the outbuildings.
Rose tinted spectacles are off now,they definately were on earlier,the building has family ties so its difficult not to be romantic about it.
I have lots of ideas for making money out of the property though so I will do some market research and see if that throws up enough positive results to merit putting more work and time into a proper business plan.

shelovestobuystuff

clutton wrote: »

you need to talk to Planning to see if you will be allowed to diversify into weddings

I am in Scotland so its far easier to get permission for weddings in alternative venues.I will look into how to go about getting a license to host them.

merlinthehappypig

TTMCMschine wrote: »

This scares me. She spent £5000 to get a mortgage. What about after - you still have to be good at running a business. We have a couple of businesses running. When doing our research for one, it amazed me how many people were tied into things they couldn't get out of. Leases etc. They thought an idea that initially sounded like their dream career move, and it becomes a nightmare. I know someone who is in the process of having her house repossesed, because of her business.

Another thing to bear in mind: Think of how many businesses are struggling out there, there are some lovely concepts that are running. They theoretically should do well, but they're struggling. Be very level headed, so you can think clearly, you have to, for your idea to have a chance to work. Are you prepared? Do you have your eyes wide open, or do you have your rose tinted specs on?

I agree completely. Most businesses fail because the owner, whilst good at what they do, has no idea about business. This is likely to be the case with my friend, despite all the help and advice that she has been given.

She simply doesn't see the business side of things as a priority. If most people had any idea about the sheer volume of red tape and potential pitfalls they would run a mile.

A riding school/livery yard near us has changed hands 3 times in 5 years. Each time it's for sale another person with big ideas and lots of money from selling in London takes it over and then goes away again with their tail between their legs. The concept doesn't work for the area - simple market research would tell anyone that.

This is another subject completely though - the OP asked about getting finance, not whether or not it was a good idea.

fc123

Hi, be really careful about the amount of debt you take on.....many start-ups fail, not because they are no good, but they have too much debt at the outset.
The accounts may show not enough profits but the agent may speak of "potential, under capitalised, needs imagination etc".

Don't be fooled by them...if the sums are big and scary, leave it for a while.
In my area, I see novice businesses in my location go bust (and lose everything incl their houses) all the time. Generally their business plans had optimistic T/O figures that fitted neatly amongst the projected outgoings.

By the time they realisd the T/O needed to survive was not achievable, it was too late for them.

Sorry to be negative....but was in a tourist seminar today and chatted to a lot of novice business owners who had swapped the PAYE for the dream.....and it wasn't what they expected.