FINANCIAL PLANNING SCENARIO

A client approached me as he wanted to get into the property rental market. He and his wife had raised £100,000 by remortgaging their home. They had spoken to a mortgage adviser who had simply suggested buying four properties for £100,000 each, using £25,000 as the deposit for each one – without taking into account the fees and charges associated with each purchase or the fact that this would provide a finite business comprising just four properties.

I explained the concept of a Special Purpose Vehicle limited company (SPV) and how this could be used for the acquisition, refurbishment, refinance and letting of residential properties and that by buying properties that required refurbishment he could end up with significantly more than four properties in his portfolio before he had to sell any of them to release further capital. A new SPV was duly set up.

The first property was bought for £70,000 cash. We worked out the financial parameters that the company would have to work within and obtained an estimated rental assessment based upon the proposed refurbishment works. This was necessary as once the refurbishment was completed they would be looking to remortgage the property to provide a cash sum for the purchase and refurbishment of the next property.

The challenge for us was to make sure the SPV was able to raise sufficient funds on a Limited Company Buy to Let mortgage at the end of each refurbishment to allow the exercise to be repeated. The key was therefore to select the right property, minimise the spend but maximise the impact of that spend on the resultant rental yield and open market valuation. The clients are now well on their way to achieving their goals and have still not had to sell a property to release equity.

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