Another property flip success thanks to bridging loan in Reading

Finance: £190,000 | Location: Reading, Berkshire

It's not uncommon for property investors to seek additional financing when looking to flip their investments. There are a few reasons for this; it might be that they look to leverage their existing portfolio when purchasing additional properties, or it might be due to the time-sensitive nature of acquiring a property below market value.

This was the case for an experienced mother and daughter pair who used a bridging loan to successfully flip their latest property purchase.

Three-bedroom mid-terraced home in Reading

An investor pair with plenty of real estate experience

The mother and daughter have established themselves as experienced property flippers over the past nine years. With seven successful projects under their belts, they are well-versed in identifying suitable properties for refurbishment and resale, in some cases having multiple concurrent projects to maximise profit. Having previously used bridging finance, the pair were looking to repeat the process on their next venture.

A suitable property investment with some refurbishments needed

The pair identified a £320,000 three-bedroom mid-terraced home in Reading that required some refurbishment before it could be sold at a higher value. The average price for 20 similar properties in this area of Reading was between £400,000 and £500,000 in 2023. The duo believed this property would fetch an asking price of circa £440,000 when the refurbishment was completed.

The property would already be desirable for a rental family due to it being an affordable option within proximity to London. The mother and daughter described the property as an ideal project as it needed only light refurbishment and no structural works. 

The ground floor consisted of a large downstairs toilet, a large study area, an open-plan living/dining room and a separate kitchen and utility room. The main bathroom and three bedrooms were located on the first floor. With a large driveway offering parking for multiple vehicles along with an enclosed rear garden perfect for entertaining, the property would suit either a professional house share or family. The mother and daughter had plans to refurbish the large downstairs toilet, turning it into a wet room with shower and toilet; the main bathroom also needed modernising, as did the kitchen.

Seeking short-term financing in the form of a bridging loan

The mother and daughter required a bridging loan of £190,000 to finance this property flippling project. This, together with profits of £165,000 from a previous flip, would enable them to purchase the property. £35,000 was allocated to refurbish the property to a high specification. This meant that the Loan-to-Value (LTV) was calculated at a little over 59%, and given the success of the pairs' previous property flips, they could secure the funding in 8 days.

With a potential resale price of £440,000 overall, there was a gross profit margin of £85,000, excluding taxes.

The taxes included £13,100 Stamp Duty Land Tax (SDLT) and a potential liability of £15,304 in corporation tax, bringing the net profit to circa £57,000. However, an immediate advantage of buying and selling property through a limited company is that, presently, limited companies can offset all of its mortgage interest against profits. So, if the interest of the bridging loan made up about £14,000, then the gross profit would have been reduced to £57,900, reducing the potential corporation tax liability to £11,594.

A profitable investment shown in an effective exit

With the work on the house completed after 3 months, the property had increased in value to around the £440,000 mark, meaning a fair return on their initial investment. Being able to secure quick short-term financing in the form of a bridging loan meant that the mother and daughter could not pass up on this opportunity. They were able to quickly sell the property for a profit post-refurbishment due to the area's high demand and move on to the next project. The pair are actively looking for their next investment, again in the Reading area.

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