HMO Bridging Finance Case Study
Portsmouth Conversion: Unlocking High-Yield Property Investment
The Scenario: Transforming a Residential Property into a High-Yield HMO
Our client, an experienced property investor, sought HMO bridging finance to convert a residential property (Class C3) into a high-yielding House in Multiple Occupation (HMO) (Class C4) in Portsmouth. The property, a large five-bedroom house, was located in a prime rental area near the university and city centre, making it an ideal candidate for HMO development finance.
Key Project Details:
Property Type: 5-bedroom house (Class C3) converted into a 10-bed HMO (Class C4).
Location: Prime rental area near Portsmouth University and city center.
Planning Permission: Secured for change of use. Permitted development rear extension.
Refurbishment Requirements: Extensive work, including adding en-suite bathrooms, upgrading communal spaces, and improving fire safety measures to meet HMO licensing standards.
Current Property Value: £500,000.
Conversion Cost: £250,000.
Total Funding Required: £750,000 net.
Projected Gross Development Value (GDV): £1.6 million.
Expected Monthly Rental Income: £9,500 (£114,000 annually).
Exit Strategy: Refinance with a long-term HMO mortgage post-completion and full tenancy.
The Solution: Tailored HMO Bridging Finance for Maximum ROI
To provide the most cost-effective funding solution, we arranged a staged drawdown bridging loan with an 80% net Loan-to-Value (LTV) on the purchase whilst funding 100% of works in arrears. This approach ensured our client could maximize their investment while minimising upfront costs.
Key Features of the HMO Bridging Finance:
Initial Day-One Loan:
£400,000 upfront to purchase the property, ensuring low initial borrowing costs.
Staged Drawdowns:
The remaining £250,000 for refurbishment was released in phases based on surveyor valuations.
This ensured the client only paid interest on the funds as they were needed, optimising cash flow.
Flexible Terms:
A 12-month bridging loan provided ample time for renovation, tenant placement, and refinancing.
100% Refurbishment Financing:
The entire cost of works (£250,000) was covered by the bridging loan, eliminating the need for upfront capital from the investor.
The Outcome: A High-Yield HMO Investment in Portsmouth
Timeline: The property was fully refurbished and met all HMO licensing requirements within 10 months.
Rental Yield: The gross rental yield was 7.13%, based on the GDV of £1.6 million and an annual rental income of £114,000.
Refinancing: Upon completion, the client refinanced onto a long-term HMO mortgage, securing a competitive rate based on the property’s higher valuation and rental income.
Why Choose HMO Bridging Finance for Your Property Development?
This case study demonstrates how HMO bridging finance can provide a flexible and efficient funding solution for property investors looking to convert residential properties into high-yield HMOs. By leveraging staged drawdowns and maximising the net LTV at 80%, we helped our client reduce costs and optimise their investment strategy in the growing Portsmouth rental market.
Key Benefits of HMO Bridging Finance:
Fast Access to Funds: Secure funding in as little as 10 days with no valuation required.
Flexible Repayment Terms: Tailored loan terms to suit your project timeline.
100% Refurbishment Costs Covered: No need for upfront capital.
High LTV Options: Borrow up to 80% of the property’s value.
No Upfront or Exit Fees: Minimize additional costs and maximize ROI.
Looking for HMO Development Finance? Let Us Help!
If you’re planning an HMO conversion or need HMO funding for a property development project, our team specializes in providing tailored HMO bridging finance solutions. Whether you’re converting a residential property into an HMO or refinancing an existing HMO, we can help you secure the funding you need to maximize your investment.
Contact us today to explore the best HMO bridging finance options available for your project!
Get a bridging finance quote online.
Email us at: enquiries@auracapital.co.uk to find out more.
