j
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Penguins are very misunderstood!
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Post by j on Apr 29, 2015 22:26:47 GMT
I stand to be corrected but this loan looks decent enough to me. The only question mark is that the borrower has no cash input, our money would effectively be buying the properties for him to do up & rent. At a minimum 55% ltv with a fairly experienced btl developer (he was also involved in the Nott'm student building, which was a success), the risk is reduced further.
Feel free to add your thoughts & challenge any of the above.
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bg
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Post by bg on Apr 30, 2015 4:39:20 GMT
I stand to be corrected but this loan looks decent enough to me. The only question mark is that the borrower has no cash input, our money would effectively be buying the properties for him to do up & rent. At a minimum 55% ltv with a fairly experienced btl developer (he was also involved in the Nott'm student building, which was a success), the risk is reduced further. Feel free to add your thoughts & challenge any of the above. Agreed. Seems way less risky than those loans backed by debtors - and at a decent rate too.
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shimself
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Post by shimself on May 1, 2015 14:41:27 GMT
well yes and the security reads
1 st charge over individual properties acquired. fine
Loan to end value 55% of purchased/refurbished properties. admittedly this could mean anything
Director Guarantee – own/controlled portfolio c£16.8m – c55% geared. something of a mystery as to why he is borrowing from AC at 15% given he's worth 8M
15% seems much too high, what are we missing?
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ianb
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Post by ianb on May 1, 2015 15:22:17 GMT
Bullet repayment ?
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j
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Penguins are very misunderstood!
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Post by j on May 1, 2015 15:34:08 GMT
well yes and the security reads 1 st charge over individual properties acquired. fine
Loan to end value 55% of purchased/refurbished properties. admittedly this could mean anything Director Guarantee – own/controlled portfolio c£16.8m – c55% geared. something of a mystery as to why he is borrowing from AC at 15% given he's worth 8M 15% seems much too high, what are we missing? Hence my question. My understanding from reading CR is that our loan will fully pay for everything with nil contribution from borrower. He simply sources, refurbishes & lets properties using our money. The high yield was thus explained to be high for this specific reason (ie zero risk on borrower's part). I suppose whilst we take the full financial risk, the borrower gets the properties effectively free (barring their time & effort input) at end of loan term (or via normal refinance at least). The PG for me is worthless (he is also asset-rich but not probably free-cash rich?!), the only thing drawing me is their experience in this field & the decent 55% ltv. Again anyone with similar/different views, feel free to share
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jjc
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Post by jjc on May 1, 2015 15:43:50 GMT
shimself – he may be worth 8M but if it’s tied up in properties he can’t use it to fund further deals. He’s getting 100% finance effectively upfront from AC (think of it as a 500k credit line, wow!) hence the 15% rate. Other thoughts in reply to j: One perhaps not irrelevant risk I see is that if he’s targeting the student market he’s going to need to move very quickly. Even if he has some props already lined up, allowing for purchase, valuation, AC approval into the deal etc the window to refurb, license & let could be just a couple of months if that.. Could mean long void periods till spring term at least / slower sales / lower selling prices. This loan is for rolled up interest (we’ll only get paid if/when he sells a property). I can see lenders being tempted by the headline rate but if some sales don’t go through quickly before autumn & no repayments are made opinion may change. I think exit could also be untidy. Difficult on this sort of deal to manage things so you have funds free to pay off the loan at the end of the term. Yes he is a HNW but all looks to be invested in property, no info as to liquid cash he has access to, even he might not have 500k down the back of a sofa. Lastly, eyebrows slightly raised at the declared net worth. In the Notts student loan it was reported at just 3.5m, he must have had a good couple of years since then Just my 2 cents
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jjc
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Post by jjc on May 1, 2015 15:52:38 GMT
j, crossed with yr latest. Agree with yr take. It really is a 500k credit card to someone who seems to have little/no liquid assets to pay it off with. If the homes get turned around quickly & sold then great, if not trouble looms. He's got to move quickly (Notts Uni autumn term starts 21st Sep, students will be signing up for accommodation Jul/Aug).
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j
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Post by j on May 1, 2015 16:17:14 GMT
(Notts Uni autumn term starts 21st Sep, students will be signing up for accommodation Jul/Aug). In my neck of the woods it can be even much earlier. Some very good points you made there, one of which I missed in my haste. Thanks jjc
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shimself
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Post by shimself on May 1, 2015 16:21:01 GMT
Given that I'm not stressed about being repaid on a certain date, just about being repaid full stop, the fact that all his money is in property doesn't seem so bad, he can alsways sell a couple of houses if needs be. And in the meanwhile 15%.
I had a similar thread some time ago about Hackney when it first appeared, and I'm on the hook for a fair amount with that one; it still looks as if it should turn out ok but isn't as much of a sure thing as it once appeared.
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jjc
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Post by jjc on May 1, 2015 16:58:05 GMT
And in the meanwhile 15%. About 14% really, if rolled up at term. Agree with the logic though, more suited to those armed with patience.
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andy2001
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Post by andy2001 on May 1, 2015 20:19:22 GMT
And in the meanwhile 15%. About 14% really, if rolled up at term. Agree with the logic though, more suited to those armed with patience. The term is 12 months so 15% rolled up at term is 15%.
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Post by jevans4949 on May 2, 2015 1:36:50 GMT
Think I'll sit this one out. Yes, the previous project was well-managed, and in fact repaid early, but if this one did go pear-shaped, the fact that the security would amount to unspecified works in progress would mean it could be a real problem to sort out.
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mikes1531
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Post by mikes1531 on May 2, 2015 4:17:55 GMT
15% seems much too high, what are we missing? 15% seems high? What about the fact that 15% is what AC lenders will be accruing. On top of that would be AC fees, which probably include aloan monitoring fee of 2% or so. I'd guess that the APR to the borrower would be at least 18%.
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ramblin rose
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Post by ramblin rose on May 2, 2015 11:21:56 GMT
15% seems much too high, what are we missing? 15% seems high? What about the fact that 15% is what AC lenders will be accruing. On top of that would be AC fees, which probably include aloan monitoring fee of 2% or so. I'd guess that the APR to the borrower would be at least 18%. And if the borrower's expecting to make a higher percentage out of the enterprise than that - and of course he is by a very long margin - then it's well worth it to him. We'd be taking on all the risk here, so I think the 15% return feels about right.
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Vero
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Post by Vero on May 2, 2015 14:15:36 GMT
The ltv for this loan is NOT 55%. This loan is for 100% of the purchase price, which means a 100% ltv by any measure. AFTER the development works are complete, AND the property is tenanted, it is *predicted* that a RICS surveyor will value the properties at 55% of the borrowed amount. HMOs are usually valued on a commercial basis, and these are NOT generally bricks and mortar valuations, they are based on a multiple of the rental income - so as far as hard security, I doubt a bricks and mortar valuation would ever be 55% ltv, even after the works have been done. It's one reason HMOs are so popular - regardless of the actual value of a house, if you fill enough rooms at a high enough rent, you can refinance at a lot more than you paid, and get all of your money out, based on the rental income, not the property. Then recycle the same funds for the next purchase and do it again. Just in this case the borrower wants to go straight to Go, he does not want to put any money in in the first place. So I expect any predicted 55% ltv would be commercial, based on the rental income, not the property. (It's still the same property! The compulsory fire doors, intumescent lighting, extra cooker/bathroom etc do not add much actual value, and are undesirable in a family home - and Nottingham is an article 4 area, they want family homes, not HMOs) BESIDES which, once the works are complete the intention is to sell or refinance; IE once that final 55% ltv is actually reached, the property would be financed much cheaper elsewhere (or sold). So the 55% ltv is an intention/prediction at exit time, it is not the ltv for this loan. I agree with ramblin rose - the risk is all with the lender on this loan, and 15% is not high. I might look at this after a few months, if any property sales or redemptions are made to reduce OUR ltv from 100%. |
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