Project Background:
In this case study, the client acquired this specific property for £105,000 using bridging finance, completing an internal reconfiguration and refurbishment throughout – initially this was a two-bed terraced house, which we then converted to a six-bedroom HMO.
The outcome of this project gave the client the opportunity to go on and purchase two more HMO properties shortly after. Within two years, the client scaled their portfolio to around eighteen properties, demonstrating how an effective use of a bridging loan, can significantly accelerate portfolio growth in a short period of time.
Challenges:
Sometimes it can be a challenge to secure high leverage at the outset. Many bridging lenders have varying criteria, particularly when it comes to the cost of a bridging loan and the overall rate available. Therefore, we structured the deal using a serviced bridging loan interest rate, ensuring the client could manage the bridging loan interest throughout the term.
One of the biggest questions we get asked, is "can we get an investment valuation on an HMO?", and the answer is yes, in the right circumstances.
Securing high leverage day one, so the client had enough funds for the refurb – use serviced and a lender that could offer higher LTV% when works are taking place.
Getting a lender to use an investment valuation on the refinance.
If a valuer goes into the property and determines that it is easy to convert back to a family home, even after it is fully converted to an HMO, we can look at getting an investment valuation.
Solution:
We were able to secure a strong funding structure, sitting on the higher side of the market in terms of bridging loan interest rates:
12-month loan term, to allow us a 6 month buffer.
Secured a rate of 0.94%, which is typically on the higher side of bridging finance.
Managed to secure a high leverage loan of 92% as there was a significant profit.
Re-financed up to 75%, and the client was able to withdraw £132,000.
Post-refurbishment valuation at £255,000.
Outcome:
Big uplift in the value of the property.
Client was able to walk away with enough profit to then look at another two properties very quickly.
Portfolio growth was accelerated much faster compared to using cash alone, highlighting the strategic advantage of using a bridging loan.
Megan Davis
