Financing a property refurbishment

A property developer plans to purchase a three-bed terrace at auction for £100k which he then plans to refurbish and resell.

Because of the nature of an auction, funding is needed upfront and quickly. In this case, a Bridging Loan was the best option for the developer to purchase the property quickly. Bridging Loans are a short-term lending option designed to bridge a gap; in this case, the gap is the six months between the initial purchase and the resale of the property.

With a clear exit strategy and a refurb time of six months, the buyer was able to get a Bridging Loan of 70% LTV a total of £72k to fund the project.

Following the six months refurbishment, the developer was then able to sell the refurbished property for £160k and pay back the Bridging Loan through the sale.

Purchase price (at auction): £100k

Cost of refurbishment: £20k

Loan Duration: 6 months

Amount Borrowed  (Bridging Loan): £72k

Exit (sale of the property): £160k