In this case study, Auction Finance guided a client through the strategic purchase and transformation of an underused commercial property, which was acquired at auction and developed into a mixed-use space. By utilising bridging finance for the purchase and later transitioning to development finance, the client significantly increased the property’s value and rental yield, attracting both residential and commercial tenants for sustained cash flow and growth.
Objective
The client’s primary objectives included:
1. Purchase
Purchase a commercial property at auction using bridging finance to secure it quickly.
2. Convert the property
Convert the property into a mixed-use development, increasing both its market value and rental yield potential.
3. Exit
Exit the initial loan with development finance to complete the conversion and move to long-term financing for sustained growth.
The Opportunity and Challenges
The client identified a vacant commercial property located in a high-demand area where residential space was increasingly sought after. The conversion into a mixed-use property provided a unique opportunity to optimise rental income by introducing both residential and commercial spaces. However, the project required both bridging finance for rapid acquisition and development finance to complete the conversion.
Key Challenges:
Auction Purchase Timeline:
Planning and Permissions:
Financing the Conversion:
Traditional mortgage options did not accommodate the property’s conversion needs, making development finance essential for a successful transformation.
Solution: Auction Finance provided a swift bridging loan to secure the property at auction, followed by a structured development finance package to cover renovation costs and facilitate a seamless transition
Step-by-Step Strategy and Execution
Step 1 – Securing the Property with a Bridging Loan
The first step involved acquiring the commercial property at auction for £300,000. Auction Finance arranged a short-term bridging loan, enabling the client to act decisively and gain ownership.
Purchase Price: £300,000
Bridging Loan Amount: £225,000 (75% loan-to-value, or LTV)
Interest Rate: 0.8% per month, on a 12-month term
With this immediate funding, the client could secure the property while planning the conversion.
Development Costs: £120,000
Total Investment So Far: £420,000
Key Renovations and Development Requirements:
Zoning Approval and Council Permissions: The conversion from commercial to mixed-use required council approval, which Auction Finance facilitated, ensuring compliance with zoning regulations.
Residential Unit Enhancements: Each flat was updated with modern kitchens, bathrooms, and energy-efficient features to attract high-quality tenants.
Commercial Space Refurbishment: The ground-floor space was modernised to appeal to small businesses, increasing its market appeal for potential commercial tenants.
Step 2 – Achieving Value Uplift and Transitioning to Long-Term Financing
With the development completed, the client aimed to exit the bridging and development loans by refinancing into a long-term mortgage. The property’s new, appraised value allowed the client to release equity and improve cash flow by covering project costs and securing sustainable financing.
Appraised Property Value Post-Development: £600,000
Exit Mortgage: £450,000 (75% LTV based on new valuation)
Financial Breakdown:
Initial Investment: £420,000 (£300,000 purchase + £120,000 renovation costs)
New Mortgage: £450,000 (covering full repayment of the bridging and development loans)
Equity Release: £30,000 (allocated to additional fees and property maintenance)
Monthly Rental Income: £4,000 (£2,500 from residential units, £1,500 from commercial space)
Monthly Profit After Mortgage: With monthly mortgage payments around £1,500, the client now enjoys a monthly cash flow of £2,500.
Why Auction Finance’s Expertise Was Crucial?
Rapid Bridging Finance:
Structured Development Finance:
Seamless Transition to Long-Term Finance:
Auction Finance facilitated a smooth move from short-term to long-term financing, maximising the client’s cash flow potential and unlocking property value.
Key Takeaways for Property Investors
Bridging Finance Supports Fast Property Acquisitions:
For auction purchases, bridging finance provides quick access to capital, enabling investors to secure properties swiftly and competitively.
Development Finance Unlocks Value in Underused Spaces:
Converting commercial spaces into mixed-use properties can significantly increase both property value and rental yield, creating diversified income sources
Strategic Exits Enhance Profitability:
Partnering with Auction Finance helped the client optimise their long-term financing, unlocking equity, and establishing positive cash flow.
This case study highlights how bridging and development finance can transform properties and enable investors to achieve impressive value uplift, increased rental yields, and strong, sustainable returns. For property investors, these financing strategies provide flexibility and support to maximise property potential in today’s dynamic market.
