It’s not a new strategy by any stretch of the imagination, but a recent article published by the Daily Telegraph shows that more and more people are now taking out large mortgages in order to purchase buy-to-let properties that are in desperate need of refurbishment – a tactic that allows investors to mitigate the negative impact of steadily rising mortgage rates by drastically increasing the gap between initial purchase price and their eventual return.
It might seem risky, but expert commentary implies that employing this strategy could yield incredibly good returns too. An increasingly large percentage of property investors are jumping on the bandwagon, and we can only expect this trend to grow.
If you do want to get involved with ‘refurbish to let’ tactics, there are a few things that you should be aware of:
- Firstly, it’s very easy to lose your head when you’re looking at mortgaging a £97,000 property (at a rate of around 5.7%) for a return of around £1,560 a month, but exercising caution is an absolute must. Unless you’re an expert, make sure that you employ a private surveyor to check the property over with a fine tooth comb, and remember that if it looks too good to be true, it probably is.
There’s absolutely no point in sinking yourself into debt only to find that substantial structural flaws will prevent you from reaping any kind of return, and the kind of ‘condemnation worthy’ faults that are encountered in some properties are often much harder to spot in a house that’s already in need of refurbishment.
- The second thing that you need to remember is that you’ll need to find a trustworthy and reliable lender to fund your venture. Recent tax cuts in 2013 led to a dramatic upswing in the amount of small-time lenders out there, but choosing the preferential rates offered by many of these new players can be a huge risk in the long term.
After all, there’s more to mortgages than just low interest, and while you don’t want to wind up paying anything more than 6%, the benefits of going for a more established lender are fairly substantial. For starters, established lenders such as Saffron tend to be able to offer much secure mortgages. They also tend to offer mortgages that don’t suffer from extra repayment charges, which makes settling your debts early much easier.
As with all investments, a healthy dose of caution is the key to making a success of things.