Portfolio purchasing can be a really good way to accelerate your property journey and get to scale quickly. Whether it’s Family Lets, HMOs or mixed use (commercial / residential), or freehold blocks, here is a quick run down of some of the salient points.
Who is selling?
Generally, there are two types of seller. Landlords retiring and wanting to exit represent the majority of units that come to market and they want to exit for different reasons. It could be that they don’t want to refinance again, the numbers don’t work for them and they want to take a lump sum to retire, or that the estate needs work and again it’s time for them to get out rather than go again, so they exit with a lump sum.
The other category is developers wanting to liquidate cash from a completed development and often bundle up the remaining units at a discount so they can move on. Approaching developers can be very fruitful.
What kind of discounts are available?
As a portfolio purchaser you are definitely in the minority, there are fewer buyers so that means you can negotiate larger discounts, often low double digit or even higher. It’s all in the negotiating of course and a cash purchase can help get a further discount but discounts for portfolios are definitely common place.
What is the purchase methodology?
Typically, there are two purchase options. Either you buy the shares in the Ltd Co or you buy the individual properties, both have pros and cons.
If you buy the shares the transaction costs are less as Stamp Duty on business is lower. However, lenders find a Ltd Co purchase unappealing because as well as shares, you also acquire the liabilities that may be residing in the Ltd Co. and this creates unknown risk, and lenders always want to mitigate risk, so share purchases are never top of the list.
The alternative is that you buy the properties into a new Ltd Co and this is a much preferred approach, but there are more transaction costs as there is a higher Stamp Duty. To counter that there is an opportunity for some or all of the discount to be used as part of the deposit which reduces the acquisition costs still further. You can also buy the portfolio with short term finance such as a bridging loan and then exit to long term finance and release some or all of your acquisition costs, and go again. Your broker can help with arranging both so plan your exit carefully, you don’t want to be stuck on a bridging loan with no exit!