Bridging Finance with Refurbishment

| July 21, 2013 | 0 Comments

Bridge Loan

When some properly investors talk about acquiring properties without or little of their own money down before the beginning of a different economic market, or getting all your cash out when completing a deal you will often hear that this is no longer possible or allowed by the lenders following the credit crunch. It’s not a case that you can’t use these strategies anymore, you just have to explore the new and adapted ways, which are also practical and acceptable in the current market. Most property investors are used to acquiring a property with the intention of getting their deposit money back out with and tax free profit released via refinancing, before moving or1 to buy the next property immediately. They could repeat this process at speed allowing them to accumulate a portfolio without or little of their own money tied up in each deal. This strategy can be used to buy to sell or holding exit plan. Selling the property and paying off the bridging loan whilst keeping the difference as profit or letting the property.

The property will generate rental income but there are no monthly payments to make, because these will have been deducted from the gross advance of the bridging loans at completion. Bridging loan is useful if you don’t want to be forced to wait 6 months before you can remortgage against the higher end value if it has increased ir1 value due a refurbishment. Having your capital and refurbishment costs tied up whilst the property is rented out in the meantime may sound acceptable, but you will have to convince the lender that the value of the property has increased with supporting evidence, before being allowed to refinance it. Due to this particular way of finance structure, it works best on deals that offers the potential to add serious value. It’s not as complex as it sounds:

A purchase price is agreed with the vendor.

Bridging Finance is agreed in principle after the lender has been shown the deal and the usual cost is around 1.5% monthly for the agreed time. At this point, bridging loan will be agreed against the full market sale price, whereas a BTL mortgage would only lend against the purchase price agreed with a vendor

Contracts are exchanged but with a delayed completion. Remember, a deposit is normally required to exchange which is about 10% or less as standard, which is the investor’s cash.

There is a clause in the contract which allows works to be carried out on the property between exchange and completion.

The investors carries out the works, the cost of the works is also funded by the investor.

The property is surveyed but valued on its post refurbished value, not on the purchase price. The investor would be able to take out a loan to acquire the property and cover the refurbishment costs at the completion point, therefore refurbishment are not left in the deal as they would be, had the purchase been funded with a BTL mortgage.

The investor completes on the property taking out the bridging finance, but remembers at this point, that some or all of the deposit and refurbishment cash is returned to the investor.

The property is sold on the open market as its full value or if you want to let it first, then it can be refinanced with a traditional BTL mortgage after 6 months. There are no monthly payments to make whilst generate rental income, because these will have been deducted from the gross advance of the bridging loan at completion. If you let your property out for a minimum 12 months which will qualify you as an experienced landlord according to commercial lenders, then you don’t need to wait 6 months, therefore this could significantly lower the cost of a bridging finance.


Category: Home Loan

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