Buy a property, rent it out, make a fortune, is the image many people have of landlords; but the reality isn’t quite as simple. From financing the initial purchase, keeping the property up to standard, and covering other costs such as tenant payment default being a landlord can be financially difficult particularly when it comes to cashflow. There are lots of commercial finance options for landlords, but what are they and can they be of benefit? Keep reading to find out more about commercial finance for landlords and how using a commercial finance broker can help your property business to succeed.
Whether you are a first-time landlord or have an established business with multi-property portfolio juggling the demands of property maintenance while making a profit is difficult. Some of the types of commercial finance that may be applicable to landlords include:
- Buy to let mortgages
- Business loans
- Bridging finance
- Development finance
Each of these types of finance have their uses but knowing which to opt for in what circumstances isn’t always straightforward. This is where a commercial finance broker can be invaluable. A broker such as MC Commercial Finance can explain each type of finance, take a business history, and gain an understanding of what you are trying to achieve enabling them to advise you in an impartial manner. They can also help with the application process with access to broker only deals, their knowledge of the market and each lender will help to ensure that you secure the right deal for your requirements. Contact MC Commercial Finance to book an appointment or find out more.
Mortgages for Landlords
Whether you are a first-time landlord looking to invest in property, or an established landlord, when purchasing a property that is to be let to tenants you need the right type of mortgage. Specifically, you need a buy-to-let mortgage. Buy-to-let mortgages are a dedicated product designed to allow you to rent out the property to a third-party. The requirements for a buy-to-let mortgage are completely different to those of a standard residential mortgage. Some of the key features of a buy-to-let mortgage are as follows:
- Usually interest only
- Average deposit is usually 20-40%
- Affordability is based on rental income of 25-30% more than anticipated rental value
- Not regulated by Financial Conduct Authority (FCA)
In addition to the above there are other considerations such as higher stamp duty costs when you own more than one property, how you intend to pay off the value of the property at the end of the term, income tax due on rental income and the potential to owe capital gains tax where a profit is made upon the sale of the property. Some or all of these will apply depending on whether the properties are owned personally or via a limited company.
If you are a landlord of multiple properties, particularly if you are the director of a limited company, you may be eligible for a business loan. When considering taking a business loan it would always be wise to seek professional advice, as a loan may one of the most well-known ways of securing business finance, but they are not always the best option. You can find out more about business loans here.
For a landlord, a business loan may be appropriate to finance the renovation of a property or to fund urgent repairs. Business loans can be relatively quick to secure and provide a fast boost to cashflow. As a landlord it is your responsibility to ensure that the property is maintained to a reasonable level, and as such if there is limited cashflow available to finance urgent repair work a business loan may be the most suitable option. A loan may also be an option where cashflow is an issue due to tenant issues such as failure to pay, or an ongoing eviction case.
Bridging loans are an increasingly popular source of finance for landlords. Bridging finance is a short-term loan that bridges a financial shortfall. This type of finance is usually used to:
- Purchase a property
- Renovate a property
When buying and selling property a bridging loan can help fulfil a cash shortfall allowing a landlord to purchase one property while waiting for the sale of another to finalise. Landlords often reap the biggest rewards in purchasing dilapidated properties at a low cost, renovating them, and then renting them out. It may not be possible to secure a mortgage on a property that is not currently in a habitable state; in this instance a bridging loan can pay for the necessary renovations, a buy-to-let mortgage is then secured on the revalued property and the bridging loan repaid.
Landlords with larger property portfolios and successful businesses may opt to increase their stock by building their own rental properties. In this instance development finance is an option and covers the cost of purchasing and developing land. The properties once built can be sold to repay the finance or mortgaged as buy-to-let to repay the development finance, or often a mix of both options enabling the finance to be repaid via the properties sold and the retained properties to be let out as an on-going source of income.
Finance For Landlords
Commercial finance for landlords can be a minefield, with ever changing rules and regulations. As such, having a knowledgeable commercial finance broker to turn too is invaluable. A broker such as MC Commercial Finance works on behalf of you and your business, striving to ensure that you get accurate advice and information, and access to the best deal with the best available rates to suit the needs of your business.