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Benefits of Bridging to Purchase Your Next Deal

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What are the benefits of using bridging over cash to purchase your next deal?

The Valuation

Your bridging lender will instruct a valuation and the surveyor will have your schedule of work, so you have a professional opinion on your now and after-works figures.

The surveyor will also pick up if there’s anything that the lender doesn’t like – for example its location, neighbors, or nearby commercial units.

 

The Legal Process

Although you will need your own solicitor to purchase property cash, they are not the lender’s solicitor and therefore won’t be able to get their take on any unusual legal issues. It is much more tricky to resolve lease issues for example after you have purchased a property. Using a bridge means we have access to a lender’s solicitor and know that the property is mortgageable.

 

It Frees Up Your Money

You can look to take on multiple projects if all your money isn’t tied up on one, which it may be if you are funding the deposit and refurbishment yourself.

You also have the option of borrowing your refurbishment costs, which on bigger projects can mean you are putting in as little as 30% of the purchase price and the purchase costs.

 

It Doesn’t Cost Twice As Much

The preconception is that bridging is expensive, but there are lots of ways we can reduce the overall cost if you need a bridge and an exit with the same lender.

Lenders can reduce arrangement fees, valuation costs, and legal fees if you use them for both, and Baya will only charge an admin fee for the refinance if we have arranged the bridge.

What options do you have for your next deposit?

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Here are some ideas for where your funds can come from…

Savings

This is the easiest one, but often the one that gets used up first! If you’re serious about getting into property then you really do need to think about how you can save money from your day-to-day expenses to create funds for it.

Especially for your first project when the lender wants to see you’re using your own funds. Look at a budget planner, find a savings account that encourages monthly savings, and go from there. There may be some sacrifices that need to be made!!

Refinance of your Residential or Other Property

Refinancing your residential property can be seen as risky by some, but you are moving the equity from one property to another.

Remember that your home may be at risk if you do not keep up repayments on it, so look at the overall picture. It’s an idea to explore though.

Gifts

Often when investors are looking for investor funds, family and friends are first on the list. It’s an easier sell, but comes with more pressure! Gifts from family are easier to use for your first few projects (before you build up some experience) and it counts as your own money!

Joint Ventures

This is an alternative where you are relying on the experience of someone else. It means your JV partner has more security over their funds and equally, you have more support for the project. You are able to split the shareholding to reflect the funds and experience of all applicants too, so it’s flexible.

One thing to remember is that generally, all applicants to the mortgage will need to sign a personal guarantee to be jointly and severally responsible for the loan, so ensure that your JV partner is happy with that setup.

Company Loans

Something we are seeing more of is where clients have a (non-property) company that is profitable and they want to use these funds to put into the property.

It is a tax-efficient way of doing things, but ensure to check with your accountant.

Investor Funds

Once you’ve built up a track record of projects – usually one or two similar-sized projects – you can move on to using other people’s funds!

Loans are an option where you run out of your own money, but ensure you factor in the overall costs.

Most lenders will now be able to use investor loans where there is a loan agreement in place and no charge on the security property. There needs to be a clear replacement method and any interest payments need to be taken into account so bear that in mind.

With the right strategy, you will be able to recycle some of your funds, so you’re not starting from scratch with each project – although “no money left” deals are hard to come across at the moment!