Steve Larkin

A guide to refurbishment finance

Property investment has changed somewhat over the last couple of years.


Where once property investment – and more specifically buy-to-let – was relatively straightforward, today those looking to make money from bricks and mortar face additional challenges. 

Whether it’s the extra stamp duty charged on second homes, the changes to the tax perks or the new stricter underwriting on buy-to-let mortgages, the sums have changed.

Nonetheless, the professional investor still sees the potential to make money from property, and a refurbishment project is an exciting option.

Polishing a diamond

Investors pick up a property that has potential, but needs some work. For investors, it’s often a case of buying the worst property on the street, the one that needs some polishing to turn it into a true diamond.

With refurbishment, that work is generally quite modest. A new kitchen or bathroom perhaps, an upgraded central-heating system, or knocking through a few internal walls. We aren’t talking about putting in an extension or a more comprehensive structural revamp. Essentially, these are projects where you don’t need to worry about the time and expense of arranging planning permission.

Savvy investors have two options once that work is finished. It has been popular in the past to keep it, building a portfolio of buy-to-let investments. But with life as a landlord rather more complicated today, the option of carrying out that work and then putting the property back on the market at a higher price can be a smart move. If all goes to plan with the ‘flip’, by now it will be worth much more than the investor paid for it.

A stepping stone to full development

In theory, there is less risk involved than a full development project, where the investor/developer has to put together the property from the ground up. Nonetheless, there is a real skill to being able to take the shell of a property and turn it into something so much more.

In fact, these projects are often the stepping stone on to becoming fully fledged property developers. Showing that you can take on a project like this – and building the knowledge base associated with it – can only help you make a success of a bigger development project.

How to fund a refurbishment project

Funding is always an important consideration for any developer. A traditional bridging loan is a useful option, but we have developed a dedicated refurbishment finance loan, specifically designed for these sorts of projects. We have listened to developers and their brokers in building the product, so that it delivers exactly what they need in order to fund their projects in a cost-effective way, giving them the best chance of a significant return. 

So what makes a refurbishment loan different from a traditional bridging loan? The key with refurbishment finance is that it is based on the final value of the property, the loan-to-GDV (gross development value), rather than its value at the time of purchase.

That is a crucial distinction, as it means developers are able to borrow that much more to fund their project. And that extra funding can go a long way, allowing the developer to make more significant improvements, which will really ramp up the value of the property when the time comes to stick it back on to the market.

As always with property investment, speed is of the essence. Refurbishment projects are very short term – the idea is usually to get it back on to the market again within around six months. 

Building loans with the borrower in mind

It’s crucial for brokers to be able to identify lenders that can guarantee swift funding for their clients, and a flexible approach that appreciates that each case is different. Brokers who work with LendInvest’s development finance team know that their clients can get funding for these sorts of projects within a couple of weeks, meaning they can get cracking on adding value to the property and making a success of their investment. 

Property investing is changing. It’s up to lenders to adapt to that and offer dedicated products that meet the precise needs of investors –and the various ways they look to invest – rather than expecting them to bend to the requirements of a one-size-fits-all approach. It’s something that we have done with our recent launches of auction finance and development exit loans, and we are committed to continuing to design loans that deliver exactly what the borrower and their broker need.

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