July 12, 2024

Many landlords face the challenge of raising capital for building purposes, whether for renovations, conversions or new developments. Releasing cash tied up in property assets can provide the necessary capital for these building projects. 

According to a survey by the National Landlords Association, 42% of landlords have undertaken property improvements in the past year, highlighting the ongoing need for accessible funding.

This article will explore several strategies landlords can employ to access these funds and continue with their successful property management. 

Why Might a Landlord Need Access To Cash?

Landlords often need significant funds to undertake property improvements, repairs or expansion. Quick access to funds can also help manage unexpected expenses and maintain the property’s value, ensuring steady rental income and tenant satisfaction. There are various financial tools landlords can consider, including: 

Remortgaging

One of the most common ways landlords can release equity is through remortgaging. This involves replacing an existing mortgage with a new one, typically with a higher loan amount. The difference between the old mortgage and the new mortgage amount can be used as cash for building purposes. 

Remortgaging has several advantages, such as potentially lower interest rates if market conditions are favourable, which can reduce overall loan costs. Often new mortgage terms can be negotiated to better fit the landlord’s financial situation.

Bridging Loans

Bridging loans provide landlords with short-term financing solutions to bridge the gap between buying a new property and selling an existing one. These loans are ideal for landlords needing quick access to funds for building, property purchases or urgent repairs. 

With typically higher interest rates and shorter repayment periods, bridging loans offer a flexible, albeit more expensive, option for landlords to secure necessary cash flow and maintain or expand their property portfolio effectively.

Home Equity Loans

Home equity loans enable landlords to borrow against the equity built up in their property. These loans provide a lump sum, repaid with fixed monthly payments over a set period, typically at lower interest rates than other borrowing options. 

Landlords can use home equity loans to fund property improvements, expansions or other significant expenses. While this option offers a reliable source of funding, it’s crucial to consider the risk of using property as collateral, which could lead to foreclosure if repayments are not met.

Selling and Leasing Back

For landlords looking to unlock significant cash without giving up property control, a sale and leaseback arrangement can be an excellent solution. This involves selling a property to an investor and then leasing it back, allowing the landlord to continue operating from the property. 

This method provides an immediate influx of cash and enables landlords to continue using the property without disruption.

Property Factoring

A new financial product was recently launched in the UK which combines traditional factoring, often associated with future invoice payments, but with rent payments instead. So for landlords who are expecting rent over the next 6 or 12 months, they can use this as security to borrow money.

Through the likes of Factored, landlords can access up to £10,000 for property upgrades, to make the property more energy efficient or even continue to grow their portfolio. The cost of this finance is very low and efficient, with rates starting from just 1.46% per month.

Government Grants and Incentives

There are various government grants and incentives available to support property development and refurbishment. These grants can be a valuable source of funding, particularly for projects that improve energy efficiency or accessibility. 

For example, the Energy Company Obligation provides funding for energy-efficient improvements, while the Disabled Facilities Grant supports adapting your property if you have a tenant with a disability.

Savings and Investments

Landlords with substantial savings or investments can liquidate these assets to fund building projects. This method avoids taking on additional debt and can be a straightforward way to access cash. 

However, it is important to consider the impact on the landlord’s financial portfolio, as liquidating investments can affect long-term financial plans. Additionally, there may be tax consequences for selling investments, which should be carefully considered.

Partnering with Investors

Forming partnerships with investors can also provide the necessary capital for building projects. Investors may be interested in funding property developments in exchange for a share of the profits or an ownership stake. 

This approach can help landlords share the financial risk and benefit from the expertise and resources that investors often bring to the project.

Summary

Releasing cash for building purposes might be the most appropriate way for landlords aiming to enhance or expand their property portfolios. Options such as re-mortgaging, equity release and partnering with investors are available to help fund building plans.

Each approach has its own advantages and considerations, and landlords should carefully assess their financial situation and goals before deciding on the best strategy.

 

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