Ah, the old dilemma, and a question I’ve been asked a lot recently.
As is so often the case in property, there is no right or wrong answer, but here are my thoughts on this.
Number 1/. Given the choice between using my money or someone else’s (in this case the bank’s), I’d use someone else’s.
Why? It allows me to do more – I can use my money and their’s, perhaps doing two projects instead of one; it means I can do other things with my money should I choose to; and, most importantly, ‘gearing’ (using borrowed money to top up my own money) means the return on my money invested is far greater (I don’t have time to go into the mathematical proof now, perhaps another time in the future, but you can work some examples yourself if you want to be satisfied on this).
Number 2/. But here’s a big but…but if I am buying a Buy to Let with the Bank’s money, the bank will need the property to be “lettable” or “habitable” (different banks use different words but they mean the same thing).
The first complication is that the banks don’t have a standardised definition of “lettable” or “habitable”. Some just require there to be a working kitchen and bathroom with running water, and don’t care the place is a rundown tip where no one would live. Others want the property to be pristine.
Then add the complication that the valuer will impose their own view of what is habitable or lettable, and what isn’t. And they’ll be using their own definition and not the bank’s.
As my main buying criteria is that the property has to need a refurb, and so is by many bank’s definition “unlettable”, this can mean that I can’t use a normal buy to let loan to buy (although I will refinance on to a buy to let loan as soon as I can after I’ve done the refurb).
SO I might HAVE to use cash to buy, or perhaps I’d use an alternative like Bridging (a short-term loan that bridges the gap between buying and going onto a conventional long-term loan).
Number 3/.Just because you buy for cash DOESN’T mean it has to be your cash.
Don’t forget, in this day and age when there are so many people who understand the merits of property, and who have money sitting around and they aren’t making very much on it, it’s (relatively) easy to finance your purchases using OPM (other People’s Money). There’s a lot of people with money who just don’t have the time, confidence or knowledge to do property. But they’ll happily lend it to you (if you just tell them what you are doing).
So buy with their money, then do the refurb, and then refinance onto a buy to let loan, and pay back your investor.
I could say more but the short answer is, if I can get a bank loan (buy to let or Bridging) I’d use a loan – If I can’t I’d buy for cash (mine or someone else’s), then do the refurb, and then pay back my investor or myself.
I’ll explain all in the video.
Here’s to successful property investing.
(ex) Chartered Surveyor, author and property investor
PS. By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to: