Have you ever used bridging finance?

Discussion in 'Property Finance and Real Estate Loans' started by PostBrexitInvestor, Mar 23, 2019.

  1. The idea of using bridging finance is very straightforward, short-term debt to improve a property with the aim that the increase in value will be greater than the cost. Have you ever used bridging finance to develop a property? If so, what was your experience?
     
  2. lookinginvest

    lookinginvest Member

    No, but I have often thought of using it to upgrade some of my properties. The higher the value the higher the rent you can charge - in theory and taking into account local glass ceilings.

    However, the basic idea of a bridging loan is so simple. Spend for example £20k on improvements and increase the value by £50k. Use the higher value to remortgage, repay the bridging finance and potential pull out some equity from the property in the form of a profit :)
     
  3. diyhelp

    diyhelp Active Member

    I see some building societies are offering "2 yr mortgages" to compete with bridging finance - anyone else heard of these?
     
  4. Longterminvestor

    Longterminvestor Active Member

    Everything is relative - if you invest £1 to make £2 then its a no-brainer :)

    However, it all has to be costed properly.
     
  5. TobiCapital

    TobiCapital New Member

    All depends on the scenario, Bridging is a solution to get from A to B.
    - BMV (Below Market Value) Purchases: dealt with this a lot, bargains that standard term loan lenders wouldn’t consider as typically will go off Lower of purchase price / value.
    Some bridging lenders will consider using Value in this scenario, giving 100% of purchase price! Then refinance onto term at market value or sell for quick profit after 6 months.
    - Purchase, Refurb/Convert & Sell or Refinance: as above comments really.
    Buy property that requires works, spend money on renovating/converting and sell or refinance at enhanced value to make good return/profit.
    - Quick Completion

    This is just a couple of examples, so many different ways it helps solve or generate a good return!
     
  6. realdeals

    realdeals Active Member

    Very true - I think there is too much focus on bridging loan rates as it is all relative. If your finance costs you £40,000 all in but adds £80,000 to the value of your property then it is a no brainer.
     
  7. TobiCapital

    TobiCapital New Member

    Absolutely correct!
    Focus on the return of capital being invested, not just the headline rate.
    For example, my client/friend invested £20k to purchase short leasehold property below market value. The lender covered lease extension costs once the clients solicitor & freeholder agreed. Client sold property and made £60k net over 7 month period after getting his initial £20k back...
    Right Deal, Right opportunity with bridging the solution - the bridge was expensive given LTV and covering cost of lease but look at that return.
     
  8. FWL

    FWL Member

    Exactly - everything is relative in the world of investment. If you always make more than the cost of the finance then you wont go far wrong in the longer term :)
     
  9. Karen R

    Karen R New Member

    Bridging Finance can be an incredibly successful funding tool when understood and used correctly. It allows you to buy property to refurbish, improve or simply enables you to secure a purchase before you have sold your own property (rather than lose the property you want to buy), it also allows you buy uninhabitable property or land without planning permission, which mainstream mortgage lenders will not consider. Many bridging products have the added benefit of rolled up or deducted interest meaning no term repayments are required and that means you do not have to prove you earn sufficient money to warrant the borrowing as the loan is based on the security & strength of the exit (ie: refinance or sale).
    If you are uncomfortable with how bridging works or the types of products to avoid, or you just want to understand the products and which ones are available to you, consider using a broker. They know their market, are up to date with the newest products, have access to standard bridging lenders but also have access to many private and bespoke lenders that do not deal directly with borrowers. By using a broker, you can be certain you have all options available to you. There are some brokers that do not charge any up front fees and any fees or commissions they earn are only payable if your loan proceeds to completion and they are then deducted from the advance so you are not having to find additional money to pay fees. Most brokers can also help you arrange refinance on a long term basis if that is your chosen exit route.
     
  10. Longterminvestor

    Longterminvestor Active Member

    If for example you bought a property for £50k, and took out a bridging loan for £50k you would then be in for £100k. If the development of the property pushed it up to £160k in value then you could remortgage at 65% LTV and raisue £104k. This would pay off the bridging loan and your initial investment and you would have £4k spare (bridging loan interest charge?) and 35% equity in the property. Simple on paper :)
     
Loading...

Share This Page