As a landlord you want the best tenant and the best return for your rental property but your lender has conditions in their mortgage contract that states no DSS; no students and no immigrants. What can you do so you don't risk repossession of your property by the bank but still take on the tenants you want?
The world of property investing changed at the time of the credit crunch in 2008. Banks became bankrupt and lending dried up. As the market improved the FCA (Financial Conduct Authority formerly the Financial Services Authority - FSA) started restricting how banks were going to lend and each year a vast array of changes are implemented making it extremely difficult to find finance for investments. Even potential borrower with good credit histories are finding it difficult to obtain money from banks. Many banks have altered mortgage conditions or started enforcing conditions within the mortgage contract making it very difficult for landlords and putting many at risk of losing their rental property investments.
Refinancing is often the only option left to landlords. But where can you get the finance or the terms and conditions to suit your rental market?
Peer-to-Peer lending and Crowdfunding have stepped in to fill the gap.
Peer-to-Peer lending provides personal loans to working adults. The loans can be for a variety of reasons and can provide the deposits often required to obtain buy-to-let mortgages. If the mortgage remaining on the property is small enough these loans can replace the existing mortgages. Peer-to-Peer lending has an easier criteria to meet than traditional bank funding options although the borrower still needs to be able to prove integrity and ability to repay the loan.
Peer-to-Peer lending works by bringing together investors and borrowers in a controlled environment. Investors can earn better returns than through a bank while borrowers often benefit from cheaper loans. For example, a borrower wants a personal loan for £2000. Two hundred investors would each contribute £10 to make up the total required. The borrow repays the loan in monthly instalments and each lender receives monthly interest and a little capital back. Many loans are available from 2% interest depending on your credit history.
Crowdfunding works in a similar way. But with crowdfunding the amounts are usually larger up to a million pounds or more per investor. Crowdfunding is available to start up businesses as well as individuals providing the borrower has a good pitch and viable repayment plan.
Often, when borrowing through crowdfunding for a property the purchaser is able to borrow the full amount of the value of the property. The borrower provides security over the property to guarantee the loan. Thus, there is a win-win situation for both borrower and investor.
Crowdfunding has more flexibility than a traditional bank loan so the borrower is not tied to a specific rental market. Some banks refuse to allow DSS tenants in properties. With crowdfunding you can target rental markets that provide the best security and best return for that particular property. For instance, borrowing £100,000 for a bank to purchase one property that has to be rented to a working couple or do you borrow £100,000 and buy three £30,000 properties that can be let to DSS. In most circumstances the three properties would provide a better return on investment than one property.
When deciding which option to take remember to calculate your yield potential and allow for vacant periods. You will still need to repay the loan even if the property is empty.
Peer-to-Peer lending and Crowdfunding provide a platform for bring together property landlords and investors. So, where will you get the funding from for your next rental property purchase?
Karen Newton is an entrepreneur, investor, Speaker and Writer. Karen started investing in property in 2001 building a substantial portfolio within a couple of years. Karen is a director of Tiroka Property Management Services and author of How to Make A Living From Property
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