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Are £1m+ properties for cash buyers only?

bridging finance Sep 20, 2018


I came across quite a few blocks of apartments for sale all priced at £1m+.  How do people finance these or are these properties cash only purchases?


If they are already tenanted and need no work, then it is just commercial lending, typically 25-30% deposit (£250k-£300k on a £1m purchase). However, that traps a lot of cash in and limits your ability to buy more.

To recycle your cash more effectively, buy a vacant block in poor condition, refurb then tenant it.  That should increase the value, so refinance at the uplifted value and pull out a chunk of your deposit cash.

These types of blocks cannot be mortgaged due to a) the poor condition and b) lack of rental income.  In such cases they are bought with cash, but also with bridging finance.

Blocks of flats tend to be available at a discount because either they have been repossessed by a mortgage lender or the owner wants to retire, or possibly they are owned unencumbered and are being sold to release cash for other reasons.

A way to get into these types of deals with a lower cash input is to understand that a few bridgers lend based on value rather than purchase price.  So you negotiate to buy a block with an asking price of £1M for £900k on the basis you can complete quickly in less than four weeks (bridging makes that achievable).

If a bridger lends 70%, one of these bridgers would lend 70% of £1m (£700k), not 70% of £900k (£630k). That means the £100k discount you negotiated forms part of your deposit thus shrinking the amount of money you need to get into this deal.  Your required deposit would shrink from £270k to £200k.

Now imagine if you were able to negotiate a purchase price of £800k, but the bridger still lends 70% of £1m asking price (£700k) not 70% of £800k (£560k). Your required deposit would shrink from £240k to £100k.

Let’s roll that forward, so you see a block advertised for £1m due to its poor condition.  It should be worth more, but it is difficult to tenant due to its poor condition.

  • You negotiate to buy it for £800k by being able to complete the purchase quickly. You need £100k in cash to do this
  • You spend £200k modernising it up to current standards so it rents easily
  • The block value now increases to £1.5m once it is tenanted
  • You get a 70% commercial mortgage, based on the £1.5m value, = £1.05m
  • You paid £800k to buy it, spent £200k to refurb it and then refinanced it for £1.05m.

Sure you have buying and refinancing costs, as well as the cost of bridging it for a few months, but you now have a block of flats in your portfolio with good cash flow. but with significantly less of your own cash tied up in it; making it possible to repeat it all over again to add another block to your portfolio - and so on.

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