Finance a property portfolio
Is property still a good investment and should potential investors be seeking to finance a portfolio or stick to a single property?
The value of commercial property assets in the UK grew by 0.17 per cent in February compared with a month earlier according to the MSCI IPD property index. Despite stable rental growth total returns fell to 0.625 per cent in February, down from 0.71 per cent in January.
The IPD index is important but tracks just 10.5 per cent of professionally managed property in the UK across all sectors including retail.
A house price survey undertaken every month by the Royal Institute of Chartered Surveyors (RICS) found that house price growth in the same month remained stable.
On balance, the adage that one should invest in bricks and mortar still holds true. But what is the most profitable way to invest in property, a single building or a portfolio of property. The clever money is on the portfolio.
Having a portfolio of property is profitable – in terms of both rental income and capital growth. Grouping property investment into a single portfolio also helps with tax planning. However, property investment is a highly competitive market and a lot of research is required to get the right properties in the right areas with the right tenants. Bear in mind that there will also be ongoing work in terms or property maintenance, the reinvesting of funds and so on.
Buying commercial premises can be a good investment. Owning a property gives your business stability. The property itself can become a significant asset. You may even be buying a business that is tied into the property such as a hotel, public house or café.
Funds of 70 per cent and sometimes as much as 85 per cent of the market value or purchase price can be advanced. The lender will often want to see three years’ good accounts. Higher loans to value (LTV's) may be achievable where you are buying as a sitting tenant.
Mortgages are usually for a minimum of 15 years. It must be remembered that the property itself is at risk if payments are not made on time.
Some lenders have a maximum limit on how many commercial mortgages a lender can hold, so portfolio finance is often a more effective and efficient way of managing property finance. It is certainly more likely to make properties profitable.
It is more profitable to group together properties in a single portfolio. This can then be financed to enable consolidation and growth, potentially driving profit up and mortgage payments down.
Portfolio finance enables funding of several different properties owned by the same individual or company. Secured against more than one property portfolio finance is designed to optimise the financial performance of that portfolio.
Portfolio financing can be structured using either a mixture of mortgage products from high street banks to specifically structured mortgage products from private lenders.
This type of financing enables consolidation – managing multiple properties but keeping financing with one provider. This allows investments to be managed more efficiently. It can also improve cashflow management and use different property values to secure flexible and competitive funding.
Portfolio finance is regarded as a single agreement even though it can contain several different rates. Loan to value (LTV) is often better than standard commercial mortgages and LTV levels and rental income can be averaged out across the portfolio allowing borrowers to benefit.
Developing a profitable portfolio can be a complex business, and most property professionals need expert advice from time-to-time to make sure that property investments are still performing as well as they could be.
At Pegasus Funding Solutions, we have access to a range of lenders. Whether you are looking to start or expand a property portfolio, or refinance existing properties to free up equity, we can explore your options and try and find the best structure, as well as looking for favourable commercial mortgage deals.
For more information contact Richard Olsen on 0203 327 0567.