Earlier this year, the Guardian newspaper asked its readers to nominate words and phrases which should be erased from the English language. One of the most popular suggestions was the word gobsmacked. One reader, Anna Newton, wrote that “the sheer ugliness and implied violence of the word makes me shudder with revulsion”. I couldn’t agree more.

However, when I found out last week about a little known mortgage restriction which some of the major lenders are imposing, I’m glad the word was still at my disposal. Otherwise I’d have absolutely no idea how to describe my reaction. I was absolutely gobsmacked!

We’ve all become accustomed to the funding restrictions imposed as a result of the credit squeeze… the restrictions on loan-to-value ratios, limits on the number of properties you can own, higher interest rates, increased arrangement fees, longer tie-in periods, stricter credit checks. I can appreciate the reasons behind the measures and I’ve found ways to work around the various hurdles so I can continue to invest in property despite the squeeze. Recently there have been signs that the worst may be over and that some of the rules were slowly being relaxed. But the events of last week prove that we’ve still got a very long way to go before we can hope for a return to ‘normal’ lending.

I’ve been helping a friend of mine who’s taking his first tentative steps into the world of property investment. We sourced a property in need of substantial refurbishment. We did our research, estimated the cost of the renovation work, confirmed the potential sale value, calculated the maximum amount we should pay at auction and obtained approval for a bridging loan. The big day arrived and when the hammer came down we’d successfully bought the house for substantially less than our self-imposed maximum, bagging ourselves a bargain well below market value.

The purchase went smoothly and the finance came through as agreed. The builders were on site for several weeks, transforming the house into a bright, modern, welcoming home. Soon afterwards we received an offer from a first time buyer who was already pre-approved for a Royal Bank of Scotland mortgage. Perfect. We snapped his hand off!

Solicitors were instructed. The RBS appointed surveyor approved the valuation exactly as requested with no retentions. A completion date was agreed and everything was going swimmingly. Or so we thought.

Just 24 hours before exchange we got a call from our solicitor. The RBS had just retracted their mortgage offer because – prepare to be gobsmacked! – we’d only owned the property for three months. Now it was obvious to all that we’d bought the house to refurbish and sell. The bank had appointed an independent surveyor who had valued the property to their satisfaction. Yet the bank refused to lend against the property, insisting that we’d have to retain ownership of the property for a further three months before they would approve the funding!

I’ve grown to accept the reasoning behind the ’six month rule’ when remortgaging a property but never dreamt the same criteria would be imposed for the sale of a property. I’ve been involved in property for many years and come across some strange funding requirements but I’ve never come across anything so ridiculous.

Our buyer has appealed against the decision and we’re awaiting the bank’s response. In the current market buyers don’t grow on trees so fingers crossed they have a change of heart otherwise we may have to mothball the property for three months, absorb the additional bridging loan payments and delay our next investment project.

I’ve spoken to a number of my contacts and it seems that some lenders have been implementing this six month rule for a while now. So I’m appealing for your help. I’m trying to find out which lenders impose the rule and how widespread the problem is. Have you sold a refurbished property recently? Did your buyer experience any problems obtaining finance? Which lenders were involved?

Hopefully by comparing notes we can help prevent more gobs from being smacked!

It’s about time I brought you up to date on my little refurbishment project.

As you’ll remember, a few weeks ago I bought a rather sad and rundown terraced house with the intention of quickly renovating and selling it for a quick return.

As you can see from the latest photographs, the property is now finished. The electrics and gas were certificated yesterday and the carpets went down today. So all that’s left to do is give the property a thorough clean.

I’ve already pre-sold the house so the purchaser’s surveyor is scheduled to make an appearance on Friday and all the legal paperwork is already well underway.

I’m really pleased with the end result, especially considering the house was in such a poor state when I we bought it. It would have been a mammoth task as a DIY project but using specialist contractors the whole works took less than six weeks.

If anyone in North West England is undertaking a renovation or new build project and would like my recommendations for reliable construction or renovation contractors then please get in touch. I’d be happy to help.

I thought I’d give you a quick update on the little refurbishment project I mentioned a few weeks ago.

If you recall, I was browsing through a property auction catalogue and spotted a three bed terraced house badly in need of some TLC. After a quick viewing I agreed to purchase the property for £56,000 before it went under the hammer. At the time of writing, that was about four weeks ago.

I immediately got an offer from an investor friend who was prepared to pay me £9,000 over and above the asking price. However, if I oversaw the refurbishment work myself I could make anything up to £30,000. The £9k was tempting – especially as it involved no work – but in the end I decided to turn the offer down and go for broke.

The property is a typical northern terraced house with front and rear reception rooms and a small two storey extension to the rear. At some point in the past the extension has been extended further to include an ‘outhouse’ with toilet at ground level and – strangely – a bedroom beyond the bathroom on the first floor!

It’s such a weird layout. You have to wander through one bedroom to get to the bathroom. You then have to go through the bathroom to get to a further bedroom beyond!

Obviously, such an original (?!) layout would drastically reduce the property’s sale value so we decided to move the bathroom to the middle of the house by ‘stealing’ a corner of the large rear bedroom. The old bathroom and third bedroom were converted into one large double bedroom. To access these new rooms we had to create a corridor through the rear bedroom which involved removing a large chimneybreast.

Downstairs we planned to remove the walls between the kitchen / pantry and the pantry / outhouse to create a much larger family-friendly dining kitchen. By doing this we would, in effect, add a second reception room for little extra cost.

Although the changes to the layout would involve a lot of work I was sure it would be worth it. The new layout – consisting of two reception rooms, large dining kitchen, three double bedrooms and a large family bathroom – would be much more saleable.

Even though I’ve completed a lot of similar refurbishment projects, I was surprised at the bad state of the house. I suspected that a lot of work would be required but the true extent of the challenge only became apparent once our building contractor started to ‘rip out’ ready for the work to commence. To give you an idea of the scale of the project, the works include:

• strip out throughout
• sand/cement render to 1.5 metres throughout
• install damp proof course
• remove two existing fire places and replace with modern units
• remove structural walls to pantry and outhouse
• fit new front and back doors
• fit new internal joinery (doors, skirting boards and architraves)
• new screed throughout
• new ceiling frames
• plasterboard / replaster throughout
• install new central heating system throughout
• level first floor by raising floorboards
• remove chimney breast to first floor
• stud new corridor to first floor
• rewire throughout
• new light fittings throughout
• install central heating system throughout
• install new kitchen units
• create new bathroom in rear bedroom
• fit new bathroom suite
• install new PVC double glazing throughout
• decorate throughout
• retile kitchen and bathroom
• fit new carpets and floorcoverings
• install new fence panels
• repoint rear walls and repaint brick work

Luckily, I know a number of excellent one-stop-shop building contractors who I can call upon to carry out all the work for a pre-agreed set fee. I’ve worked with them on numerous occasions so they know exactly what standard of finish I expect. I’ve visited the site a few times but other than that I simply leave it to the experts.

As you can see from the photos, the work to the first floor is well underway and nearing completion. They should have all the work done and dusted within the next 2 – 3 weeks.

Adding Value

We’ve added considerable value by carrying out a total refurbishment. However, by making structural improvements and changing the useable space within the property we’ve further enhanced the property’s value and desirability.

In fact, the extra work and expense has already paid off. We’ve just sold the house to a first time buyer. To keep finance charges to a minimum, we offered a few incentives to encourage a quick sale. It means we’re not making as much money out of the deal as I’d first hoped but I think that’s a small price to pay for an immediate sale on completion.

The whole project will take just over eight weeks from purchase to sale. The refurbishment is going to cost more than I’d originally budgeted due to the terrible state of the house. However, it’s involved very little of my time and energy and will return a profit of around £15,000.

So, I’m now searching for my next project. Anyone know of any houses in desperate need of a Forshaw makeover?

Part 3: Auction Property Renovation Project. Done and Dusted!

It’s easy to get disheartened in these times of apparent doom and gloom. But there are rich pickings to be had if you look hard enough.

I thought I’d share with you a little deal I put together last week which, depending on how we decide progress, will earn Forshaw Land and Development either £9,000 (for next to no work) or £30,000 (for a bit of work).

The story is a quick demonstration of how easy it is to spot a deal in your own back yard and make a very substantial profit in return for a couple of hours work.

Just another normal day at the office

I was sat at my desk last Wednesday when I received an email from a local estate agent advertising an upcoming auction.

Lot number 5 immediately stood out: 518 Leigh Rd, Westhoughton. A rather run-down 3 bed terrace property in an area I know well. With a guide price of just £50,000 – £55,000 it seemed a very good deal… even for a property in need of some serious TLC. A quick look at Rightmove confirmed that a 2 bedroom house in this location sold fairly recently for £100,000 and similar 3 bed properties had achieved £110,000.

It was obvious from the photos on the agent’s website that the house was in dire need of modernisation and judging by the furniture and decor, it was probably a probate sale. For those unfamiliar with the term, a probate sale is where the executors of a will are required to sell off the assets of someone who has passed away. Probate sales usually present ideal investment opportunities because, unlike owner occupiers, executors are less motivated to achieve maximum sale prices. Their main concern is to achieve a quick sale. A perfect scenario for us investors!

Next step was to call the agent and arrange a viewing. By chance there was a block viewing the next day at 1pm. My brother and I went along and it was clear from the number of people crawling all over it that there was a lot of interest in the house. My assumptions were confirmed. It was indeed a probate sale and the house required a full refurbishment job…

• New central heating
• Full electrical rewire
• Damp course
• New PVC windows and doors
• Re plaster throughout
• New joinery throughout e.g. new skirting boards, architraves, doors and sills
• New fireplaces to lounge and dining room
• New render to extension
• New kitchen and tiles
• New bathroom and tiles
• Move the bathroom from extension to main part of property to create 3 double bedrooms and large bathroom
• Redecorate throughout
• Tidy front and rear garden / yards
• Overhaul roof

Luckily, I’m an old hand at refurbishing houses having completed over 100 projects to date. So after a quick look round I was fairly confident the work would take my team around 5 weeks to complete. The cost? Around £25,000 should cover the refurbishment work and finance costs (we’ll use a local bridging firm who charges between 1% and 2% per month depending on the deal).

As soon as I’d finished looking round the house, I called the agent and asked whether the vendor would consider pulling out of the auction if they received an immediate offer. She confirmed they would… but due to the high level of interest shown so far, £56,000 would be the lowest offer they would accept. Even at this price we still stand to make around £30,000 profit… and we won’t run the risk of losing out to a higher bidder at the auction. We immediately emailed our offer, less than 24 hours after receiving the details from the agent.

Our offer was accepted on Friday morning. We paid the 10% deposit and signed the contract Friday afternoon. The whole process took less than 48 hours!

So, what next?

We now have two options…

We either sell the house today for a quick profit of £9,000 by passing the contract to an investor who’s willing to pay £65,000. In this instance, the investor will pay back our deposit of £5,600 plus our £9,000 ‘fee’ and then complete the purchase directly with the vendor. That’s £9,000 pure profit for a couple of hours work. Not bad eh?

Or, we complete the purchase, refurbish the property and earn ourselves a profit of around £30,000. A bit more hassle… but we stand to earn a lot more.

Decisions, decisions! Whichever route we decide to take, I’ll let you know how we get on.