First-time buyers and homeowners face many difficulties in arranging finance, but landlords and property investors have to overcome many hurdles to buy property. If you are looking to invest in property, make sure you know how landlords finance property investment.
One of the critical issues that landlords struggle with when buying a house is that there are so many costs to consider. Landlords need to offer a sizable deposit when arranging finance, but with legal, administrative and decorating costs to consider, many landlords need additional assistance in buying a home and making it available to rent.
Make sure you know what a buy-to-let mortgage entails
The common finance solution for landlords is a buy-to-let mortgage. While the principles behind the buy-to-let mortgage is similar to a standard mortgage, there are some differences. Landlords are usually required to provide at least a 25% deposit for a buy-to-let mortgage, and the criteria imposed by lenders is often stricter.
Landlords should ensure their finances are in good condition and that they have a suitable business plan for the rental accommodation. If the lender doesn’t believe that this property will generate income for the landlord, or that the landlord’s property portfolio will not cover their costs, the lender is likely to reject the application.
Home equity loans
An option that some landlords consider is a home equity loan, only being available to landlords who own property. However, not all landlords can obtain a home equity loan, and not all would choose to do so. It is possible to refinance your mortgage, but better rates can be found.
If landlords have extinguished other options, mezzanine finance may offer a solution. This style of mortgage combines aspects of debt financing and equity investment, with finance often being secured about the property which is being purchased. This solution helps landlords to minimise the level of cash required upfront, helpful when the project is a sizable one.
A landlord looking for short-term funding will often turn to a development loan or bridging finance. This style of credit can cover a temporary shortfall of the financing to buy a home, repair work, development work and even the cost of decorating a property.
While each property transaction is unique, with some variable factors influencing the deal, the critical variable factors are usually the landlord’s starting budget, the property they wish to purchase and their history as an investor. These aspects will influence what lending companies are prepared to offer to a landlord.
If you are looking to invest in property or be a landlord, you need help from experts who know the industry. At Holmes Estate Agents, we provide a range of services that make life easier for landlords, and we look forward to assisting you.