Bridging loan? or something else?

leap_of_faith

This really is a leap of faith, full of a number of pitfalls i`m aware of (let alone the ones i`m not). So, we are thinking of taking on a family members home that is in a nigh on derelict condition. We will put our property though an auction hoping to get about 20k from the sale (equity) for a quick turn around.

The family members home doesn`t have a working kitchen or bathroom so we wouldn`t be able to mortgage it as it stands would we?

It will need to be gutted we think, it`ll need new roof, render/plaster, electrics etc ... Its a huge job to tackle, but set in the acreage and the area it is, once done, it should be worth in excess of £275k+ (if not more)

We estimate it`ll cost about 100k to do the work.

So is a bridging loan the best way to go, any pitfalls I should be aware of? Or if cleaned out, roof mended and a working bathroom and kitchen (just basic put in) would we be better just going for a mortgage on it to free up money to fix it up?

Never tackled a project this big before so unsure of how it works. Thanks.

leap_of_faith

Really? ... No one knows or has any ideas? :beer:

eddddy

So...

You will have £20k cash
Renovation will cost £100k
What is the property's market value in it's current condition?
And how much will it cost to buy (from your family member)?


I think the highest LTV you would get for a bridging loan is 70% to 75% of current market value.

And since you are a 'newbie' developer with only £20k cash, I think the lenders will see you as ultra high risk.

I'd say your best starting point is to have a chat with a few bridging loan / development finance companies to understand their lending criteria.

leap_of_faith

Thank you.

Yes, 20k minimum in cash.
We won`t have to pay anything to the relatives for it. (£1 to do it legally?)
Current market value £180k.

Our other idea was to try and get it "mortgagable" ? ? (we can live on site in a static, we`d just need to know what is generally deemed as mortgageable) and then mortgage the property to release the equity to renovate it properly (if this was another possible option?)

It is all new to me, but there has to be a way to do it. We have an excellent credit history, and no debt, so once our house was sold we`d not be tied to anything.

littlelost

I watched restoration man yesterday on catch up...you may still be able to get it on channel 4.


Although my husband is a builder I have no experience with regards to the finance side of things however I took the following from the programme that may assist.


The couple were renovating a derelict school and got a bridging loan whilst they were waiting to sell their property however the interest and repayments were staggering (£400 p/w)


They then got a mortgage on the school but only when the mortgage company deemed it as habitable ie it needed to be airtight (windows doors etc) have electric, running water, toilet, sewage etc....


They really struggled with the financial side of things but eventually it all came together...It may be worth having a watch.


http://www.channel4.com/programmes/the-restoration-man/on-demand/54292-008

leap_of_faith

Thank you for that 'LL' ... That was helpful

We`ve spoken with one bridging loan company so far, the interest on 100K would be 1% per month (so £1k a month) but the interest is paid at the end of the term and not monthly, so our exit strategy would involve paying back the 100k borrowed, 12k interest and fee`s of about £2k ... so 114k in total to be paid back at the end of the 12 months term.

Looking into this in a bit more depth similar properties have sold for 300K plus, so getting a mortgage on it for 114k to pay off the bridging loan won`t be a problem. I just wish there was a way of doing it with a mortgage to start with ... **scratches head** lol

comeandgo

If you don't pay the interest on the bridging loan until after the 12 months is the outstanding interest regarded as a loan and interest added on it too?

littlelost

how much will it cost just to get it to habitable? Can you not do the majority to the work yourself or pull in some favours etc....


If you can try and do as much as you can with the 20k and pull in favours from anyone and everyone you know then get your mortgage it will save a fortune in the long run.....


I remember them also saying on that programme that if you don't pay the bridging loan back within the set time the bank will just take the property....I am unsure if that was c4 exaggerating or is really the case......

eddddy

littlelost wrote: »

...
I remember them also saying on that programme that if you don't pay the bridging loan back within the set time the bank will just take the property....I am unsure if that was c4 exaggerating or is really the case......

Property development is a very hard-nosed, high-risk business. Some people make large amounts of money, others lose large amounts of money.

For example, leap_of_faith may get the loan then find japanese knotweed in the garden, or dry rot in the roof joists, or a collapsed drain, or bats living in the loft...

As a result, leap_of_faith runs out of funds and/or can't repay the loan on time. So the property is repossessed, and put in the next auction. And leap_of_faith has lost many thousands.

Pixie5740

What's the purpose of the venture? Is it to make money from property development or to renovate a house to live in?


If this wasn't your relative's property would you even be considering purchasing it?

Foxy-Stoat_3

Pixie5740 wrote: »

If this wasn't your relative's property would you even be considering purchasing it?

OP will buy it for £1 from their relative and I hope they will live in it for many years to come, just thinking about CGT if they sell.

OUCH!