The world of property investment is diverse and complex, encompassing a variety of property types and valuation methods. Whether you’re a seasoned investor or just getting started, understanding these nuances can make or break your success. In this post, we dive into the key property types, valuation methods, and the challenges investors face with surveyors and valuations.
Breaking Down Property Types
The types of properties investors encounter vary widely, each with its unique features and considerations. Here’s a quick guide:
1. Buy-to-Let (BTL)
A standard residential property where tenants live as a single household. These are the bread and butter of many property investors.
2. House in Multiple Occupation (HMO)
HMOs are properties rented out by at least three people who are not from one household but share facilities like a kitchen or bathroom. These can range from small shared houses to large properties with multiple en-suite rooms. Valuations often differ based on rental income versus bricks-and-mortar value.
3. Semi-Commercial Properties
These properties feature a mix of commercial and residential units—for instance, a shop with flats above. It’s essential to differentiate these from fully commercial properties, which have no residential aspect.
4. Multi-Unit Freehold Blocks (MUFBs)
These properties are single freehold titles comprising multiple self-contained units, such as a block of flats. They’re increasingly popular due to their income potential.
5. Commercial Properties
These include offices, shops, warehouses, and even hotels. Valuations are often based on rental income or the specific usage class of the property.
6. Aparthotels
A growing trend, these properties blend hotel-style services with self-contained apartments, offering high yields and flexibility.
Understanding Valuations
Valuations are a critical part of any property transaction, whether for purchasing, refinancing, or developing. However, the process is often riddled with challenges due to the subjectivity and variability of surveyor opinions. Let’s explore the key valuation types:
1. Bricks-and-Mortar Valuation
This valuation focuses purely on the property’s physical attributes without factoring in its rental income. It’s typically used for residential properties and smaller investments.
2. Investment Valuation
Used primarily for HMOs and MUFBs, this valuation method calculates the property’s value based on its gross rental income, often multiplied by a yield factor (e.g., 7-10 times annual income). It’s essential to choose a lender and surveyor familiar with this approach.
3. Hybrid Valuation
For properties that don’t fit neatly into one category, such as smaller HMOs, lenders may use a hybrid valuation. This combines elements of both bricks-and-mortar and investment valuations, though the process can lack consistency.
The Challenges with Valuations
Property valuations are notoriously subjective, leading to frustration for investors. Here are some common issues:
- Inconsistent Valuations: Send 10 surveyors to the same property, and you may get 10 different values. This is especially true for properties like HMOs, where experience and methodology vary widely.
- Down Valuations: Surveyors often undervalue properties, particularly rental income, citing subjective reasoning. For example, a surveyor may ignore signed tenancy agreements that clearly demonstrate higher income.
- Unreasonable Comparables: Surveyors sometimes dismiss valid comparables, leaving investors with valuations that don’t reflect market reality.
- Rigid Processes: Lenders often treat surveyor valuations as gospel, even when compelling evidence to the contrary is presented.
Tips for Navigating Valuations
- Choose the Right Lender: Some lenders work with more experienced valuation panels that understand niche property types like HMOs and MUFBs.
- Prepare Your Case: Provide detailed comparables, rental agreements, and supporting documents to strengthen your position.
- Challenge Unfair Valuations: While difficult, it’s possible to appeal a valuation with strong evidence. Be persistent and thorough.
- Work with Experts: Experienced mortgage advisors can guide you through lender and surveyor selection, ensuring your application aligns with the best possible valuation outcome.
Final Thoughts
Navigating property types and valuations is no easy task, but with the right knowledge and support, you can overcome the challenges and maximise your investment’s potential. At Hearthstone Mortgages, we specialise in helping investors secure the right finance for their unique needs. Whether you’re dealing with down valuations or exploring complex property types, our expertise can make all the difference.
Need help with your property finance? Contact us today to learn how we can support your investment journey.
