Asking for the Impossible...

Asking for the impossible … 

THE QUESTION

Obviously you find the good deals when you’re not looking and haven’t got the capital to hand.  Currently I have around £20k in cash, and I’ve found a property that requires refurb (£15k).  The purchase price is £195k, with a projected sale price of £270k. 

How can I finance this?  I am happy to look at bridging.  I’ve never done a flip before, always BTL, and I’m not averse to renting it out, but the yield doesn’t really fit my usual figures.  Am I asking for the impossible?

THE ANSWER

You more or less got it - asking for the impossible.  Your available cash equates to 10% of the purchase price, and then you need to also pay for, stamp duty, valuation fees, legal fees, and the refurb on top.

No lender will to lend you 90% of the purchase price, so bridging is a non-starter, - you need more cash, or you need to use equity in a property you already own.  If you own a property with at least 50% equity a cross-collateral bridge may work.

One option you have is to pull in private money from individuals, at least enough to cover the balance of the deposit bridgers will need (25%) plus all the other associated costs.  You will, of course, need to pay them interest and they may want a return of 10%.

This is how that could work:

Stamp duty: £5,850

VAT fee: £500

Your legal fees (purchasing): £1,000

Bridgers legal fees: £2,000

Bridging interest and fees: £10,000

Private interest: £5,000

Refurb: £15,000

Agent sale fees: £3,000

Your legal fees (sale): £1,000

Approximation of total costs: £43,350

If you could buy at £195k and sell at £270k, you should still clear a £20k + profit - if you think that is enough.

Delayed completion bridging would be another option. Here you get the current owners permission to enter and refurb the property after contract exchange, but before completion. You have enough cash to pay for the refurb. You will of course need to get the owner to agree to do this (not all will do so).

Then you use specifically a Done-Up-Value bridger to lend based on the new current value of £270k. They are likely to lend 70% of that = £189,000, so you will still need to put down a £6k deposit, unless a bridger will lend 75% = £202,500.

You would still need to use private money for the shortfall of the other fees mentioned, or possibly a personal loan could be sufficient when using the delayed completion option.

Watch 'the 5 types of bridging' video to find out more about Cross Collateral and Done-Up-Value bridging

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