April 16th, 2015. Ben Lloyd
Analysing the Financial Risk of Your Purchase
When it comes to buying property there are often large risks that need to be taken. This can be an extremely daunting process that, without in-depth research and analysis, can land you in major trouble. But how do you go about assessing financial risk?
Here are just a few of the things that you need to take into account when purchasing a property.
Price of the Property
Before you do anything else, you need to determine whether or not you can realistically afford to purchase the property and still be able to make a profit on it. There are several things that you need to consider here, including:
• Refurbishment and materials
• Any structural work that needs to be done
• Cost of labour
• How long the project is going to run for
• The amount it will sell on/ rent for
You will need to figure out the profit margins very early on in the project to ensure that it remains profitable. One of the most important factors to consider is how long the project will take – you won’t be making any money during the build or redevelopment so you need to have funds to cover this period.
This is a statistic that varies massively depending on the type of property and where it is located. Make sure that you find out what type of properties are selling in the area and the typical market value that you can expect to achieve. Finding out what properties simply are not selling is also vital, as this can drastically reduce the risk of being stuck with an unsellable property.
Knowing the kind of figures you can expect to achieve will allow you to make more realistic expectations regarding profit margins. This can drastically reduce the financial risk of the purchase, as you can make much more accurate calculations from the start of the project.
Getting the Right Finance
Finance is essential when it comes to projects, as having a package that is not suited to your needs can be extremely detrimental.
There are many different types of commercial finance that are designed for a range of purposes; finding the right one can be a tricky job. For example, if you’re buying at auction, then auction finance might be your best bet … but what about a bridging loan? Would that be an option? This is where a broker can come in and help. Thanks to their connections with lenders and their overall knowledge of the market a broker will help to get you the right finance in the fastest possible time, while leaving you free to get on with planning and running the project.
Renting or Selling
This is one of the biggest decisions and potential risks that any investor or developer takes when purchasing a property. What is the overall aim? Are you looking to sell the property on or rent it out? There are pros and cons to each decision, but figuring out which is best can be extremely tricky.
By selling the properties on you can make an instant profit, allowing you to quickly move on to the next project and not have to continue to maintain the property. Renting allows you to retain the capital held within the property while covering the long term mortgage on the building.
The decision should be largely circumstantial and will depend strongly on your financial situation. If you’re not 100% sure on what the right move is for your finances then talk to Pure Commercial Finance today by calling us on 02920 766 565.
Article By Ben Lloyd
April 16th, 2015
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben