You’ve bought a property and refurbed it and now you’re ready to refinance at it’s higher value and get as much of your money out as possible. Then you can move on to the next deal.
The problem is you have to convince the mortgage lender’s surveyor that your property has escalated in value. The surveyor will look at what you paid for it – regardless of what the original market value was and start from there. If you’ve negotiated a great deal and bought below market value that just adds to the problem.
You’ve bought a property for £100K; you have spent £20K refurbing it to a high standard. Your due diligence tells you that it should now be worth £150K, based on discussions with estate agents, checking on land registry, a Prices Sold or similar website. You have a clear idea of what this property should now be worth – except the mortgage lender’s valuer values it at £125K.
The result is that you trap way more cash in this property than you anticipated, derailing your plan to move out of this deal and on to your next one.
Depending on how much cash you started with in the first place one or two setbacks like this could take you out of the game – simply because you’ve got no cash left; it’s all stuck in the properties that you own!
How close you get to the value you think it’s worth will be determined by what extent you can shift the valuer’s focus or mind-set from the purchase price you paid to the value you’ve created. It’s your responsibility, as the investor, to make the case to explain why the condition of the property now is different to the condition of the property when you purchased it.
This is my IMPROVE hit list to help you do that:
I – Images:
Make sure you have plenty of before and after shots so the surveyor can see how bad things were.
M – Make the effort
Turn up to the valuation and make sure the surveyor has ALL the paperwork
P – Purpose
Has your refurb included a change of purpose? E.g. a house converted to an HMO? Show comparable values of similar properties that have been sold recently nearby (sold, not for sale).
R – Refurb
Show a detailed work schedule of your refurb. Detailed means something like the detail that will be shown on the delivery note.
O – Occupy
An occupied property looks better than an empty one, so make the effort and furnish your property if it’s not already got tenants.
V – Valuation
Get your own valuation from an independent surveyor. That will give you something from a professional colleague to provide to the lender’s surveyor.
E – Expectations
This about managing the gap between your assessment of the property value and that of the lender’s surveyor. This is particularly important when an HMO conversion has taken place. The surveyor will need to see there is a visible difference between your conversion and similar properties next door.
If you follow these steps you’ll get more of your money out of each deal and be able to build a substantial property portfolio.