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Cash buyer – with no cash!

Cash buyers get better deals.  They can negotiate substantial discounts on the asking price for properties, sometimes even as much as 50% below market value if there’s a really motivated seller.

The need to get a mortgage slows things down and can take months, so the ability to get the deal done in under a month can be very attractive to a seller who wants to get money out and move on.

I’ve explained how bridging works in many of my blogs, but to really see how it operates here’s a fairly typical case study.

The investor:  An experienced investor, but not with bridging finance.  He had about £38K in actual cash available.

The property for sale:  A former care home, originally a terrace of six houses, that had closed due to the owners being unable to afford to meet the Care Quality Commission standards.  It had been on the market for some time – with no interest.

The asking price:  £350,000

The plan:  To apply for permission to convert it to an 18-unit HMO.

The cost of conversion:  £50,000

The process

The investor negotiated the asking price down to £250,000.

Bridging finance was applied for based on the value of £350,000 – and the bridging surveyor agreed that the property was worth that.

A bridging loan of 70% of full value over six months was applied for and agreed.  This gave the investor £245,000 less set up costs of £7,375 to make his offer.

Using £12,375 of his available cash he made the offer and was accepted.

Planning permission for the 18-unit HMO was applied for – and rejected.

Plan B – planning permission to return the property to its original six terraced properties was applied for – and given.

With his remaining £25,000+ cash conversion and refurb was commenced.

When the refurb was partly completed, we negotiated a further advance from the bridging lender based on the increased value of the property due to the work already done.

The property was revalued on completion – and valued at £450,000!

After all the fees, repayment of the bridging loans and costs of refurb the investor made a tidy £122,777!

The moral of this case study is that high profits can be made if you’re a creative investor (and you have a good broker who knows the right lender for your project!)


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