How To Use A Bridging Loan To Buy, Refurbish And Sell A Property
How To Flip Property With Bridging Loans
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
Buy, refurbish and sell, or property flipping is a popular property investment strategy that can produce great returns for investors.
In this guide, we’ll break down how to use bridging loans to fund these acquisitions, the benefits of doing so and how the process works.
What is a bridging loan?
A bridging loan is a type of short-term, secured finance that is designed to be taken out for a short time, usually 1-12 months.
Bridging loan interest can usually be added to the loan, leaving you with no monthly repayments to manage.
There are specific types of bridging product, known as property refurbishment finance that can be used to fund these projects.
Why use a bridge loan to buy, refurbish and sell?
As these loans are designed specifically to act as a short-term loan, they are an ideal fit for property flipping.
Here are some of the key benefits of using a bridging loan to buy, refurbish and sell:
Added leverage increases your return on investment
When borrowing against your project, you’ll be putting in less of your own money, and achieving almost the same return.
This means that for every £1 you deploy, you’ll be getting a greater return – which is ultimately the end goal in property development.
There are no monthly repayments
The process of managing your finances during a refurbishment project can be tough. Money is going out from all angles, which can be hard to keep track of, and budgeting is key.
The fact that bridging loan interest is usually added to the loan means that you have one less monthly cost to consider. This is a big advantage over traditional mortgages.
You can take on additional projects
As you’ll be putting less money into each project, you will be able to take on more properties at any one time.
This can increase your returns significantly and speed up your cash flow cycle, as you’ll have multiple potential sales, rather than waiting on a single property to sell.
They can be arranged quickly
When you find a bargain property, it’s important that you move quickly. In fact, the ability to complete the purchase quickly may even improve your negotiating position and allow you to buy at a better price.
The fact that bridging loans only take 2-3 weeks to complete, and can even be set up in a matter of days when needed makes them an ideal fit for this situation.
How much could I borrow?
We can offer property refurbishment loans up to 85% of the property value, or even 100% with additional security.
As you’ll be repaying the loan through the sale of the property, your income usually won’t be a limiting factor. Instead, lenders focus on loan to value (LTV) as the key force in deciding your maximum loan.
In monetary terms, we can offer bridging loans from £10,000 with no maximum loan size. We even offer a range of specialist large bridging loans for requirements over £1,000,000.
Read more – Bridging Loan To Buy A New Home Before Selling or Can I Refinance A Bridging Loan?
What are the criteria?
The key to success is a strong exit strategy. When the exit strategy is to sell the property, we can check how long similar properties take to sell in the local area.
That gives you extra security that your loan exit is realistic and reduces the risk of falling into trouble at the end of the term.
How do I repay the finance?
The repayment of the loan is made through solicitors when the property is sold.
When the property is about to sell, a redemption statement is issued to confirm the outstanding balance including any accrued fees and charges.
Your solicitor will then confirm this with you, repay the loan out of the sale proceeds and release what’s left to you.
How do I get started?
To get started, contact us and we’ll be more than happy to talk through your options, what terms you could achieve and how the process would work.
Fill in our form, or give us a call on 01922 620008.
