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First Time Investor

M

Mark1986

New Member
Hi All,

My friends and I ( 4 in total) are about to buy our first renovation property at auction.

We will be selling the house once the property is refurbished and then reinvesting any profit into the next one.

Our trail of thought at the moment is that we will set up a joint account to control all our finances.

In terms of financing the deal we will be taking out a bridging loan to complete on the house and then using our own personal money for the renovation.

Does this sound reasonable? If anyone has any pointers or watch outs they would be very much appreciated.

Kind regards

Mark
 
R

realdeals

Active Member
One thing that strikes me, I think you are doing the finances the wrong way round. Surely it would make more sense to use your own funds, with no interest charges, to buy the house? Then use the bridging loan finance to complete the renovation. That way you are paying interest on a shorter period of time and if you can agree staged payments for the bridging loan then even better.
 
M

Mark1986

New Member
Thank you for the advice.

Our trail of thought is to buy a house for circa 100k.

75% LTV bridging loan = 25k deposit

That would leave us about 20k for the renovation.

So if we were to use more of our cash to purchase the house e.g putting a 45k deposit down, would a bridging loan company lend us more money than we need to complete the reno?

Thanks you for the help, we all
appreciate it.
 
R

realdeals

Active Member
So you have around 45k in cash between you to help buy the property? Enough to put 25k down and 20k to fund the renovations?

It all depends on the timing - if it was to take same 6 months to sell the property then you have expensive bridging loan interest to cover. If it was a quick sale then there would be no need to swap your finances - however it would put pressure on your to sell asap and not necessarily get the best price?

In theory this is how I would see it panning out. Put down the deposit of 25k and take out a loan for the rest. Use the 20k excess you have to fund the renovations and then take out a traditional mortgage, at a lower interest rates, on the higher value of the property (it should be worth well in excess of £120k after the renovations otherwise dont bother). That way the cost of your finance is lower while you try to sell the proeprty and you are able to release some of the paper profit for other investments. Once you sell the property simply repay the mortgage and move on to the next one. Have you ever thought of a loan arrangement/mortgage which allows you to sell a property and buy another without going through the whole loan process again? A kind of floating call on the property?
 
F

FWL

Active Member
Bridging loan finance is expensive and should only be used as a short term stepping stone to either a sale and/or more traditional (cheaper forms of finance).
 
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