There are various options for financing real estate investment projects. In our latest Q&A, David Jackson explains the best financing route for a doer upper that will eventually be rented out
The question
I have decided to buy a house at auction to renovate before renting it out. I plan to do the work myself with help from family and friends, which will probably take eighteen months to two years.
Do I have to take out a buy-to-let mortgage during this period, even if it is not occupied by a tenant for at least a year and a half and I do not earn any rental income?
David’s answer
A buy-to-let mortgage is for property that will be rented out, and the lender’s decision is based primarily on the rental potential of the property.
If the property is in need of major renovation and will not be habitable for 18 months or more, it can be difficult to obtain a buy-to-let mortgage as lenders typically expect the property to be sold relatively quickly after taking out the mortgage. are rented.
In this situation, a bridging loan may be a better option. Bridging loans are short-term loans intended to ‘bridge’ a gap, such as financing the renovation period before switching to a buy-to-let mortgage once the property is ready to be rented out. Some lenders offer products that switch from a bridging loan to a buy-to-let mortgage once the renovation is complete.
As 18 months is generally too long to hold a buy-to-let mortgage with no rental income, it would be advisable to explore alternative financing such as a bridging loan.
Once the renovations have been completed and the property is habitable, you can refinance it on a buy-to-let mortgage.
Meet our expert…
David Jackson founded Prestige private financing in 2014 after nearly two decades in the mortgage industry. With experience in London’s high net worth areas, David and his team offer empathetic and expert advice for your financial journey.
If you have a question for David, please email [email protected] or leave a message in the comments below.