Many buy-to-let investors now face having to provide more information to lenders who have more stringent underwriting procedures for ‘Professional Landlords’. Previously they may have obtained lending just by an appraisal of the viability of each property being purchased.
Most ‘portfolio lenders’ are now asking for a ‘Business Plan’ and Cashflow projections. There is confusion about what should go into such a Plan, to the point where many lenders have come up with their own preferred versions. That however assumes you know which lender you are going to be sourcing debt from.
Here are Five Tips for Portfolio Business Plans:
- Don’t use a generic ‘Business Plan template’ which would apply to a business start-up for example. Many are available (either by free download or to buy on the internet) but most of the content is not relevant and they don’t impress lenders.
- Remember that your Business Plan needs to demonstrate to a lender that you are not just a good landlord/property owner but that you are also a capable business person. Make it a professional and compelling document to read.
- ‘Not too short and not too long’. An experienced borrower might understandably begrudge having to supply this information and produce a quick document which doesn’t properly inform the lender. An ‘enthusiast’ might produce a document of telephone directory size. A lender is looking for an easily readable document (don’t forget they are busy too) which gives them sufficient facts to understand you/your portfolio/what you need from them – and enable them to appraise the application in terms of loan to value criteria and serviceability.
- Don’t overwhelm lenders with numbers, believing that bankers and underwriters love numbers and reams of financial projections. They don’t – they want to understand what they need to know, which is what net income is available to service the borrowing (anything else is in verification of that).
- Don’t pay someone to write your plan for you, without taking ownership of it. The best plans are those that are written by the investor themselves but with guidance. A ‘ghost-writer’ can be used but make sure that they have correctly captured not just the facts but also the ethos of what you do. Do also ensure that you use someone who can make a judgement on ‘how the lender would look at this’.
Cornmill Associates have supported Portfolio Investors in presenting plans to lenders and have Business Plan and Cashflow templates that have been approved by lenders. Get in touch if we can be of help.