The client bought a property at auction via their limited company in October 2020 for £320,000. The first-floor three-bedroom flat purchased was a freehold premise – with a ground-floor retail unit already sold on a long lease below it. This client was inexperienced so teamed up with a firm of builders/project managers who had completed numerous similar projects.
We secured a 75% loan-to-value (LTV) bridging loan of £240,000 for them. As there was going to be a considerable amount of work carried out, we retained the payments, so the client did not have to worry about their cash flow during the project. We also secured an additional second charge refurbishment loan for them of £120,000, to fund the works. This meant that they had to put less of their own money towards the project and assisted with getting it funded at a higher LTV. In this instance, the bank knew the builders involved with the project and was comfortable with funding both parts of the facility (both the bridge and refurbishment loans).
At purchase, it was a very basic three-bedroom residential flat in a rundown condition. The next step was obtaining planning permission to convert the flat into a five-bed HMO, which included a rear roof extension and the installation of three windows in the roof. The plan was to convert and build en-suites for each of the bedrooms. As the client had retained the loan payments, they did not have a monthly commitment and they were able to concentrate on getting the work done.
The works were comprehensive and included:
- Stripping the inside of the property back to brick
- Rear roof extension and installation of three roof lights
- Creating one communal kitchen and five en-suite bedrooms with kitchenettes (no cooking facilities) of slightly different sizes + installing new kitchen appliances
- Re-wiring each bedroom and the main kitchen with its own individual fuse box
- Re-plumbing the whole house – introduce a MegaFlo Water Pressure System
- Rockwool insulation between all floors
- Sound-proof insulation and new wood flooring on each floor
- Thermal plasterboard on all external walls – for keeping the heat in and reducing damp
- Skimming and painting all walls
- New shower trays, W.C., washbasin & tiles for each bathroom
The total cost of works was £120,000
Prior to doing the work, the clients had had a valuation completed, which gave them an expected GDV. It was the same valuer who inspected the property after the works and valued the asset in April ’21 at £600,000, with an annual rent of £51,000 for the five-bed HMO.
With the planning permission and HMO license application submitted, it was a good prospect to take over to a term facility. The total amount spent on costs on the facility and stamp duty at the time was £445,000. When we remortgaged we repaid both charges and the client was able to recover all their funds used for the purchase and works. Now they have an income-producing asset bringing in a monthly income of £2,499 and a mortgage payment of £1,751 per month.
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