Bridging Loans For Flipping Houses

What is property flipping?

Flipping houses is a term often used by property investors to describe the process of buying a property and then selling it for a profit.

In most cases, this is achieved by refurbishing the property, thereby increasing its value before then selling it for its new value.

The key to running a successful property flip is to ensure that the improvements made to the property, plus the cost of financing the transaction is far less than the increase in value.

Generally, property investors look to make a profit of at least 10-20% on any property flipping deal.

Is flipping properties a risky strategy?

Property flipping can be a risky strategy if it’s not well managed, although careful steps can be taken to reduce this risk.

The main risk of flipping property is the fact that there is no guarantee that the house will be sold for the projected value.

The property market runs on the principle of supply and demand – if there are strong properties competing in the same market segment at the same time, or little demand, your sale price will drop.

To protect yourself against this, you should carefully analyse the transaction before committing and if possible, consider alternative exit strategies if a quick sale isn’t forthcoming.

For example, could it be remortgaged to a buy to let mortgage and held. If so, would the new property value and rental value allow you to pull your costs back out of the deal to let you go again?

Can you get short-term finance for property flipping?

Yes, the best option is to secure a bridging loan for property flipping.

Bridging loans have significant benefits that make it an ideal candidate to fund property flip deals.

Firstly, bridging loans can be completed quickly, allowing you to complete a transaction far quicker than would be possible using a mortgage.

Bridging finance can also be arranged, through specialist property refurbishment finance products, to allow you to borrow towards both the purchase, and the full refurbishment costs.

Finally, bridging lenders like short-term transactions, whereas mortgage lenders actively avoid this sort of lending. Instead, only lending where they will not be repaid for some time.

This is because the year 1 income on a mortgage is low for a lender, meaning that short-term lending is not profitable for them.

Read more – Property refurbishment loan calculator or Bridging loan for auction property.

How to use a bridging loan to flip houses

To use a bridging loan to flip houses, most borrowers borrow either a large percentage of the purchase price, or a lower percentage, plus the refurbishment costs.

For properties that are below their current market value (not the value after refurbishment) we can arrange 100% bridging loans, without the need for any deposit.

Whichever route you choose, you simply use the bridging funds to purchase the property, complete any planned works and then market the property for sale.

Once the property is sold, you repay your loan in full and take the profit.

In most cases, interest can be rolled up into the loan, leaving you with no monthly repayments to make.

How are applications assessed?

Applications are assessed based on current loan to value and your chosen exit strategy.

Lenders want to ensure there is sufficient equity in the property to mean that their money is not at risk should you fail to repay the loan.

While a lender may be happy to offer higher gearing, thereby reducing the equity, they will want to ensure the refurbishment works are completed to bring the loan to value back to a lower level.

To ensure this, a lender will consider the level of works required and your ability to complete them.

Where works are complex, lenders may want to see experience in tackling similar refurbishments.

For light refurbishment projects, experience is likely to be less of a concern.

Finally, demand for the completed property will be considered to ensure that a sale is likely within a reasonable timescale.

Read more – Bridging loan for a barn conversion or Bridging loan for a self-build.

What do bridging loans for property flipping cost?

The main cost associated with this type of finance are the bridging loan rates charged. Bridging loan rates start at 0.39% per month, with rates between 0.39-0.75% being common.

On top of the interest charged, there are some other costs to consider. These come in form of fees, with the most common being:

• Lender arrangement fee – This fee is payable on completion, can usually be added to the loan and is usually 1-2% of the amount borrowed.
• Broker fee – Although we don’t charge any broker fee for arranging bridging, many do. This can be as much as 1-1.5% of the amount borrowed with many bridging loan brokers also charging upfront fees.
• Valuation fee – While some applications will be eligible for an automated valuation, which come at no cost, some will require a physical valuation, which comes with a fee.
• Legal fees – Bridging applications come with legal fees, much like a mortgage. These fees are paid throughout the application process and can’t usually be added to the loan.

How much can I borrow?

We can offer bridging loans for flipping houses for anything from £10,000 with no maximum loan size.

We offer a specialist large bridging loan range for loans over £1,000,000.