11 Aug 2017 – Secured Loans: Case Study 2
A client is in the business of buying vacant residential plots in upmarket neighbourhoods and building houses on the plots before selling it for a profit. He is able to pay for the plot and a portion of the construction costs, but requires funding to complete the projects prior to its sale.
CapX assisted the client on a number of occasions by putting a facility in place against which he could draw funds as the project progressed. The facility would be granted for 40% of the value of the property upon completion and a first mortgage bond to that amount would be registered in CapX’s favour.
The initial advance would normally be 40% of the value of the vacant land and as the project nears completion, the client would present us with updated valuations of the property at any particular stage at which point CapX would make further advances, subject to the loan not exceeding 40% of the total value of the property at that point in time.
Upon completion, the client would sell the property and repay the loan from the proceeds of the sale. The balance would be used to fund the initial costs of his next project.