Lisa Orme was a forensic scientist for 14 years and began her new career as a letting agent and property investor ten years ago. A successful property developer and investor Lisa has bought, sold and rented hundreds of properties in the Midlands and is particularly well known for her advanced strategies and down-to-earth approach.
Lisa is also a mortgage broker and offers a range of finance, insurance, wealth management and asset protection products; specialising in advice and services for new and established property investors.
Lisa’s website is at www.keys-mortgages.com and you can follow her at twitter.com/lisaorme and twitter.com/keysmortgages
One of the most common questions I’m asked of late is ‘is it still possible to buy property with no money down?’
So I’d like to explain what No Money Down really is, how it came about and whether it’s still possible. Read part 1 of this article here.
So what can you do?
Lease options, options, using other people’s money, credit cards, loans, seller financing are all possible. BUT do not be fooled into thinking that these strategies are without their problems despite the hype!
Lenders want you to put your own money into a deal and are asking for evidence of saved up deposits more and more. This means that if someone pops a £25k deposit into your account the day before you’re due to complete you may well find that your mortgage is refused.
Depending upon the relationship you have with your bank and generally if you are sufficiently high net worth you may be able to arrange a special lending facility to enable purchases against open market value.
Also some mezzanine/specialist commercial finance lenders/merchant banks may consider purchase against open market value but rates and terms are likely to be strict and not palatable to the average investor.
The best strategies are to use bridging finance or refurbishment mortgages.
Refurbishment mortgages are available from a couple of lenders and are hugely beneficial to investors. These weren’t available pre credit crunch so we should be grateful for small mercies!
You will be required to put in a deposit at purchase but then after refurbishment you can remortgage the property to a specified limit. You won’t get all of your money out on most deals but you can get a good portion of it back enabling you to buy another property and keep building your portfolio.
Bridging firms will usually also require you to put in a 20-30% deposit these days. Open market value lending is really not achievable for most deals. There are a couple of bridging lenders who will look at the valuation of the property and may be more generous in their lending if there is a substantial discount. BUT this is not buy to let finance and is expensive.
If you opt to use bridging then you can often combine using investor partners, loans and credit cards etc should you wish to as these lenders are less interested in where your deposit comes from.
Once you have carried out any works or waited a suitable time then you can look to remortgage the property at open market value. Most lenders require you to have owned the property for at least 6 months before remortgaging but a couple will consider remortgaging in less time especially if you have done works on the property which can be evidenced.
You can get all or at least most of your money back out with this route though it is not a cheap way of doing it.
My view is it is good business sense to reduce your costs and expenses but not by committing a crime! I see NMD schemes as no different to tax evasion. Yes you should minimise and even find ways to legitimately avoid tax but evading is a whole different ball game.
I’m a huge believer in getting your money back out of any investment as soon as possible. When I invest in anything I always set out with the aim of pulling my initial capital out asap and then anything from that point forward is a bonus. Conversely anything I lose was surplus cash and not my original investment.
This has certainly always been my aim in property. We had a lump of cash to start with and intended to build a portfolio with it. I had to get it back out and working again or we would run out of cash – it was that simple. However, we at least had some cash to start with; small a sum as it was. What concerns me are those people who want to do no money down because they don’t have any cash at all.
Even if you still choose to acquire property with no money down despite my warnings it can still be a very cash intensive business. Within weeks of buying a property you could find the boiler breaks down or you struggle to rent it out and need to cover the mortgage for a few months. If you don’t have any cash reserves at all then this will be your downfall. So if you’re looking for the holy grail of no money down property investments BECAUSE you don’t have any money at all then stop now.
While many newer investors have only experienced instant refinancing, high LTVs and low rates this was more of a temporary blip than the long term reality of property investing. Prior to the introduction of buy to let mortgages you were lucky to get anywhere near 70% on a commercial loan and it was typically a repayment mortgage on commercial rates. When I got started in property we had to put in large deposits and wait at least 6 months before a revaluation and the hope you could withdraw your money.
I know the above isn’t what any investor wants to hear but the fact is the world has changed and people need to move with the times. As both investors and mortgage brokers we will not get involved in any sort of scheme that involves non disclosure to the lender. If lenders relax the rules or other products emerge I’ll be the first to use and promote them.
If you don’t wish to heed my advice, then make sure your next deal is a really good one as it could be your last!
Article Provided by Lisa Orme
Mortgage Broker and Property Investor
If you would like to ask Lisa a question email firstname.lastname@example.org
The above is for information purposes only; rates can change and may not be applicable at the time of publication.
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