For most people property deals require a substantial wad of cash to get into the game, but that isn’t always the case.
Typically a mortgage requires 25% down – and that’s before you start doing the refurb. Then there are the properties that are basically sound, but aren’t in good enough condition to live in – and which no mortgage lender will even consider.
Properties that need a serious facelift are unmortgageable – but they also offer the investor an excellent deal. Once the work is done they’re worth much, much more than the purchase price and the return on investment can be substantial – but without that essential cash they tend to be the preserve of cash buyers.
However, there are ways around this challenge – and they’re legal and are very profitable for the investor.
Two of my clients came to me for help with very different outcomes.
The first client – let’s call him Alan – had found a property that had been a care home, but had closed down due to the current owners being unable to fund the required improvements to meet regulations.
They were asking £350K – but Alan offered £250K and this was accepted as the owners were still paying the mortgage and it was cash going into a big black hole!
Despite Alan being unable to get planning permission to convert the property to an HMO, he was granted planning to return the property to the six terraced houses it had been originally.
The big problem was that Alan didn’t have 25% of £250K to spend – let alone the £50K that would be required to carry out the necessary conversion work.
We went to work to find the right bridging lender who agreed that the property, in its current state, was worth £350K and was happy to lend £237.5K (net with interest). This meant that Alan only had to pay 5% of the actual deposit on £250K.
Alan only had 25K left to pay for the refurb, but he started the work and then we asked the bridging lender to review the property’s value. With the work that had been done, the value of the property had already risen and they released additional funds to enable Alan to complete the refurb.
When all the work was done he had six properties worth a total of £450K. He got a commercial mortgage and got his money out, repaid the bridging loan and now earns a good rental income from the properties.
Bernice had found a property that had been willed jointly to four beneficiaries. They all lived in different parts of the country and none of them was interested in keeping the house.
As they just wanted a quick sale to release the cash and sort out the estate they agreed to sell for £63K. However, the actual value of the property was £95-100K so there was the potential to make a substantial profit. The only problem was that Bernice didn’t have enough for the deposit – and came to me for help.
As the bridgers we use lend based on value we had no problem finding the funding for £60K, which left Bernice only £3K to contribute.
While the property needed quite a bit of work, Bernice wasn’t really interested in doing that. Instead, while the property was undergoing completion, she put it up for auction. The reserve was £65K and she was astonished to watch the bidding go up and up until the property sold for £118K.
Bernice turned the whole deal around to final completion with her buyer in just three months and paid off the bridging loan, leaving her with a nice profit to invest in other properties.
Having a big bank account is not always necessary – you just need to know how to fund your investments creatively to release their value, without tying up your capital.