It’s blog time again! We are feeling more optimistic that we may be nearing the end of this lockdown, and some warmer weather definitely helps!
This week I thought I would cover investor funds and bounce back loans; there does seem to be an air of money floating around within the property world at the moment and I can see why. Bank savings rates are at an all time low, even lower than the previous all time low! We have seen a 400% increase in bank savings in the past year; a combination of being unable to spend money and an uncertainty of what’s to come means that lots of people have got more money than they usually have. We’ve also seen so many people take out bounce back loans for their property companies, as they have been affected by Covid.
So how can you take advantage of this as an investor?
There are many ways. Bounce back loans are a simple way of increasing the funds you have for your next property purchase. There has been many changes over the last year of how lenders view these loans, but on the whole they are now acceptable to be used for your deposit or refurbishment costs. What the lender doesn’t want to see is that you are stretched and have only got the bounce back loan funds available, but as part of your funds available that is fine. It’s also very important that you don’t have any outstanding payment holidays on your portfolio.
I have to caveat this by saying that each lender has their own risk appetite and therefore there are some lenders who won’t be comfortable with clients that have taken a bounce back loan, or they can have taken it but can’t use it for this property. This is mainly more high street or as we like to call the ‘vanilla side of specialist’ lenders. What this means is that you may need to use alternatives lenders, or bridging finance (which you may need anyway) to be able to use this money. Please speak to us about your scenario and we can talk you through the options.
What about investor funds?
It’s unsurprising that there are so many people wanting to invest in to property at the moment, with so few alternatives. It also offers investors a short term option when they are indirectly investing, or an opportunity to use smaller amounts of money to dip their toe in. The returns are far higher than many other options, and the risk may be more comfortable to them than investing themselves.
As an property investor, using other people’s money is a quick way to grow your portfolio. It’s something that lenders are becoming more comfortable with as it becomes more popular.
It is so important to look at a few things before using investor money:
- Do your due diligence, this is so important. You are entering into a financial commitment with someone so you need to be comfortable with them and where the money has come from.
- Have a clear plan with a number of exit strategies. You need to know that you can repay the loan within the timescales. Make sure your investor knows what your plan is, and gauge how they would be if it runs over the time. You need to build trust with investors by delivering on your commitments
- Have you demonstrated that you can deliver on your promises with a previous project? You need some experience to show your investors, as well as your lender than you are capable.
As with bounce back loans, some lenders are not happy with using investor funds. What we usually see, however, is where you would use these funds for the purchase or refurbishment and then the investor will be repaid on refinance or sale. Bridging lenders are on the whole happy with investor money, as long as you are putting in some cash and have some experience.
Please let us know if you have any questions, we’re happy to run through any deals or scenarios you have. Have a great weekend, and happy property hunting!