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Converting commercial to residential and recouping investment

Bridging | 19 January 2022

A client of ours made some excellent choices to enable them to purchase a commercial unit and immediately recoup most of the cash investment they’d made. This allowed them to move straight on to their next project whilst gaining passive rental income and increasing their portfolio.

Because the loan amount was higher than the purchase price owing to the additional funds needed for the cost of works, the client was able to secure the total loan on Day 1 by putting an additional property down as security.

We thought property investors may be interested in how it was done.

Leveraging property to secure finance

Client was purchasing a commercial unit for £291k to convert the upper floors in to 5 flats to sell which had a combined Gross Development Value (GDV) of £590k.

The client planned to retain the shop downstairs to let with an income of £10k per annum and a value of £120k, taking the total GDV to £710k.

They raised £400k on a bridge to fund the purchase and some of the works while fronting circa £155k themselves, which was almost completely recouped with the £149k project profit.

High level numbers

  • Borrowed – £400k
  • Self-funded – £155k
  • Unit purchase price – £291k
  • Cost of works – £263k
  • Cost of finance – £41k
  • Gross Development Value – £710k
  • Profit – £149k

Recouping their investment with £150k profit and an unencumbered commercial unit generating a passive income of £10k per annum is a great example of leveraging your existing property to expand your portfolio quickly and efficiently.

Do get in touch if going down this route interests you by emailing paul@propp.io or calling 01489 346788.

We can point you in the direction of some cracking auctions, negotiate the finance on your behalf and will be on hand to give you advice along the way.