Buy Refurbish Refinance Strategy

The buy, refurbish, refinance strategy is a great way of building a large property portfolio quickly. By adding value to a property through refurbishment landlords are able to re-mortgage and recycle their original deposit to buy further properties.

To explain how this strategy works, you would purchase your first property by utilising the vanilla finance strategy that we blogged about last week but look for a house that you can genuinely add value to through refurbishment. You will need to be realistic about the amount of refurbishment you are able to do, the amount that you are able to spend on the refurbishment and the likely increase in value of the property. Don’t get caught out and spend more time and money than you will recoup.

Once the refurbishment has been completed you can ask for a surveyor to revalue the property. Provide before and after photographs, a schedule of works and before and after comparisons. You would then re-mortgage according to the new property value using the difference as a deposit on your next property.

Let’s look at how this works in practice using a typical local example purchase price of £60,000. Let’s say you negotiate a mortgage at 75% which is £45,000.

You would then need to invest £15,000 as a deposit, let’s allow £5,000 to cover purchase costs and another £5,000 for the refurbishment so that the initial investment is £25,000.

Let’s say the new value of the property is £94,000 and the re-negotiated mortgage is still at 75% which is £70,500 leaving you with equity of £23,500.

Once you have paid off your original mortgage you will be left with £25,500 (£70,500 less £45,000) that you can use to invest in another property. In addition you will still receive a rental income from the property.

Beware though, that if house prices begin to drop you could be caught in a situation where you have bought a property, made a further investment to refurbish it and now cannot refinance it. We recommend that you get to know the local market really well and if properties are going down in value that you negotiate a bigger discounted price and always have a plan B. We also suggest that you have a good contingency fund that you can use during the refurbishment phase for any unexpected expenses.