Bigbank Launched a Special Apartment Flipping Loan for Real Estate Investors
Bigbank, a bank specializing in loans, has launched a flipping loan specially designed for legal entities engaged in real estate investment, which allows purchasing and renovating apartments located in Tallinn, Tartu, or Pärnu with a renovation cycle of up to one year for resale purposes.
According to Aimar Roosalu, head of Bigbank's corporate banking unit, market participants have long discussed the necessity of such a product, as banks have generally been quite reluctant to provide loans for purchasing apartments in poor condition. "Just as we were the first in Estonia to launch a specific and profitable investor home loan designed for private real estate investors, Bigbank is now also the first provider of flipping loans with competitive terms for companies in Estonia," he explained.
According to Roosalu, a flipping loan is a banking product that allows an Estonian real estate micro-investor to start a business or expand their current activities. "It suits us that the apartment is being purchased in poor condition and its condition temporarily worsens further during repairs. Apartments in poor condition are often more liquid than new apartments and are sold quickly among active flippers," Roosalu confirmed. He stated that Bigbank, being thoroughly familiar with market conditions, is a very active real estate sector financier on the corporate banking side, and on the other hand, the bank has already accumulated a home loan portfolio of approximately 400 million euros.
According to Aimar Roosalu, the flipping loan is intended not for complete beginners, but for real estate investors with some experience, although the bank does not require applicants to have a business history. According to the product's terms and conditions, an entrepreneur can open a flipping loan limit with Bigbank, the purpose of which is to purchase an apartment, renovate it, and later sell it at a higher price, whereby it is possible to renovate multiple apartments simultaneously from the limit. The loan limit is 25,000 – 500,000 euros and with this amount one can purchase an apartment in poor condition in a panel or stone building located in Tallinn, Tartu, or Pärnu, whereby the bank finances 75% of the value stated in the property valuation report. The interest rate for a loan limit opened for up to 12 months is from 5% + 6-month Euribor. The principal of the loan limit is repaid at the end of the contract (upon sale of the apartment) and only interest is paid monthly.
An entrepreneur wishing to open a flipping loan limit with Bigbank must present to the bank a property valuation report for the real estate serving as collateral (no older than three months) and recent photos of the purchased apartment; a renovation budget for the flipped apartment, where the project profitability is at least 15%, and also the company's capital structure to demonstrate that there are own funds available for purchasing the apartment, renovating it, and servicing the interest obligation. A first-order mortgage is placed on the collateral in favor of the bank.
According to the loan limit contract, the renovation period of the purchased apartment is maximum 6 months, followed by a sales period of 3 months. According to the flipping loan terms and conditions, renovation works must be carried out in a manner that does not require a building permit, subsequent use permit, or conflict with Estonian Building Register data. If the apartment has not been sold within 3 months after completion, a new valuation report must be submitted to the bank. More detailed information and the loan application form can be found on Bigbank's website at: https://www.bigbank.ee/flippimislaen.
