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The Property Voice Podcast - Series 2: Property Cycles - The Investment Property Lifecycle - Finance
I am joined on the show today by Simon Allen from Searchlight Finance. Simon is an experienced investor himself, as well as being a finance broker specialising in investment property. So, it is fitting that he joins me today as we look at the Finance phase of the Investment Property Lifecycle then. We shall explore financing property and with Simon’s help will also gain insights, tips and warnings of what to do and not to do when looking at investment property financing. Join us as we chat through the merits and pitfalls of using a finance broker and how to avoid being blacklisted by a lender.
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Resources mentioned
Blinklist book summary app
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
We are progressing through the stages of the property investment lifecycle. Previously, we discussed the first stage, which is: acquire. Now we move forward to look at the second stage, which is finance.
I am joined on the show today by Simon Allen from Searchlight Finance. Simon is an experienced investor himself, as well as being a finance broker, specialising in investment property. We shall explore financing property and with Simon’s help will also gain insights, tips and warnings of what to do and not to do when looking at investment property financing. Have a listen to my discussion with Simon, as we chat through the merits and pitfalls of using a finance broker, how to prepare yourself for a smooth finance application and how to avoid being blacklisted by a lender.
Let’s start with my interview with Simon and we can pick up the thread again shortly.
Property Chatter
Interview with Simon Allen
I think this discussion with Simon highlighted some of the key reasons why I always suggest dealing with a finance broker that specialises in investment property. For example, he mentioned the fact that many lenders are now asking for the SA302 from HMRC well before the January online filing deadline, which no doubt many of us will normally be working towards with our tax returns. In other words, they should be up to date with current lender requirements.
In addition, I liked the way Simon broke down the requirements of lenders between the bridging finance companies and all the rest. Bridging lenders are more interested in the business case and especially the exit strategy for an individual investment, along with the property’s value. To a lesser extent they are also interested in the borrower, although this is secondary. Whereas, with all other forms of lending, the borrower underwriting is where the lender starts and that’s why so much emphasis is placed on credit rating, personal circumstances and the like.
I was really pleased when Simon clearly advised us to avoid using long-term finance, such as mortgages, for short-term projects like flips. I hear so many people suggest people do this just because it is possible and supposedly ‘cheap’. However, think about it for a minute, why would a long-term lender be satisfied with a small (by their standards) set up fee and a reduced interest receipt in cash terms for a 6-12-month project? If you understand finance company profitability in anyway, it doesn’t make any sense for them to do that and that’s why they will eventually look to close this route down with borrowers that appear to be abusing it. Let’s not forget that whilst one mortgage lender may turn a blind eye for a while, perhaps to grow market share or their customer base say, that the other lenders have full visibility of what we are doing through our credit file. It is the other lenders refusing to deal with us that we should be concerned about here…and one day, even this ‘turn a blind eye lender’ will have enough new business and will close that back door short-term financing route as well, leaving us high and dry. As I have said many time, access to financing is one of the biggest aspects of being a successful property investor.
Similarly, when considering financing any property there are three key phases that we need to be concerned about:
- How we are presented and underwritten personally – this highlighted the need to have our affairs in order for some time in advance of when we intend to seek finance
- The property and its condition, value and marketability in both the sales and rental market – this highlights that the lender will undertake their own due diligence by their own standards, such as having a minimum rental coverage above mortgage payments at a stress test interest rate for example
- The legal aspects of the sale, including title, restrictive covenants, risks such as flood, subsidence, knotweed and so on – this highlights that often what limits a property’s asset value and marketability are legal factors and other risks that may not be immediately apparent when we view a property; it also demonstrates the requirement to have a good legal team in place ourselves
Simon made reference to the overall property cycle and how finance products and offerings can change as the cycle also changes. The Mortgage Market Review or MMR, whilst primarily affecting owner-occupiers has also had an impact on the BTL sector, the Global Financial Crisis (GFC), put the brakes on high loan-to-value lending, however more recent event, such as the Government’s tax changes, are making limited company lending more broad-based and new entrants into the sector are offering both development and refurbishment finance products on a wider scale now as well.
I think the over-arching recommendation we learned from all this is to be thorough and complete in the information we share with our broker. More than this, we need to get ourselves ‘lender-ready’ well in advance of when we think we need to be…sometimes six months before we apply with a clean and accurate credit report, bank statements with no obvious issues, all the necessary approvals and permissions in place and the HMRC tax return / SA302 reports ready to hand as well.
If you want to take advantage of Simon’s offers to receive his quarterly update & the special remortgage offer he mentioned, then either contact him direct, our website to with the show notes for today’s episode has his contacts, or just drop me an email podcast@thepropertyvoice.net and I will make sure you get them instead.
Your Voice
For the Your Voice segment of the show this week, I have a request to make of you. In addition to the series format that I am following on The Property Voice podcast, I also have smaller topics and top of mind thoughts through my shorter musing episodes. My ask of you is: what subjects or themes would you like me to cover on the show?
It could be a big theme to cover in a series, such as financing, which I am planning for a forthcoming series. Or, it could be a shorter topic suitable for one of my one-off musings episode format instead.
It matters not, all I want to know is what would you like to hear more about on the show…that is what Your Voice is all about after all.
So, drop me a quick email: podcast@thepropertyvoice.net with your ideas of topics, themes or other content for the show and I will do my best to plan it into the schedule for you.
Thank you
Shout Out
As you may already be aware, I am an avid reader. Last year I had a reading challenge that focused on volume of new material quite a bit. This year, however, I plan to mix and match my reading approach a little. I will be revisiting certain books to re-read and adopt into my daily practices, routine and psyche. I will also be on the hunt for new material as well.
To assist me in the hunt for new material, I have been looking at a number of services that offer book summaries. There are several and they vary in their style, content and cost. However, one I have found to be pretty useful is Blinklist.
I quite like Blinklist as a) it seems to be more affordable than many of the other book summary services and b) offers bite-sized book summaries that cover the salient points within a 15 minute read time. This allows me to get an overview of lots of different books in a short period of time and then I can decide which ones I would like to read in full.
There is a free version that limits the options to one book per day of Blinklist’s choice, so you can give it a try that way. However, the paid-for subscription is very reasonable and with one version allows an unlimited number of book summaries from their library. Equally, it has an audio version, so as a podcast listener, you can get your fill of more great audio content through Blinklist book summaries as well.
So, that’s my Shout Out for today: Blinklist the book summary reading app…give it a try and let me know how you get on with it.
That’s another episode of the Property Voice podcast in the bag. Next week we will drill down a little more into the subject of financing our property acquisitions and will also look at some the alternative and creative financing methods that are available in addition to the mainstream lending routes.
Don’t forget to drop me an email personally with suggested topics for the show to podcast@thepropertyvoice.net
Meanwhile, the show notes will be over at the website www.thepropertyvoice.net
Thank you very much for listening again this week and until next time on The Property Voice Podcast…it’s ciao-ciao