Buying a property, refurbishing it and then selling it on is one of the most common ways property developers make a living. Properties often in need of work are often purchased at an auction where prices can sometimes be lower and the developer can get a good deal.
Because of the nature of an auction, funding is often needed upfront and quickly and developers might not always have the full amount upfront.
This is where a bridging loan comes in; a bridging loan is a short term loan which acts as a bridge between different types of funding.
Purchasing a property at auction doesn’t always come without complications; this is where a good relationship with a broker can come in handy.
In this case, an experienced developer was looking to purchase an old pub at auction, obtain planning permission and convert it into flats.
Although the property didn’t have planning permission at the time of sale, with a bit of research on the area and logical rationale, it was very likely that they would obtain planning permission for the development.
The developer aimed to purchase the property at auction for £200k, then apply for planning permission. Once the planning permission was granted, the exit strategy was to refinance the development through Development Finance.
In this case, a Bridging Loan was used to bridge the gap whilst the developer was waiting for planning permission.