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Can you get 100% bridging?

bridging finance Oct 30, 2018

THE QUESTION

Can you 100% fund with bridging an optioned project using planning gain as equity?

The project is a conversion of offices to residential, with planning for Change of Use.

The projected uplift in value is 35% upon consent. total circa £1m.

Although I have no actual direct experience, I do have a few very large client successes and similar smaller scale projects in my portfolio.

THE ANSWER

In terms of loan to purchase price, bridgers divide into broadly 3 camps

  1. Those that lend on the lower of the purchase price or value, exactly the same as mortgage lenders do
  2. Those that will recognise a value uplift, but put in a maximum loan to purchase percentage override i.e. the lower of 70% of value and 85/90% of purchase price. This would mean whatever value uplift you created they would still require a minimum of at least 10% of purchase price input from you
  3. Those that genuinely ignore the purchase price and lend on value

Of those, No. 3 is the rarest, but they do exist...

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Buying an unmortgageable property

Some people will warn you that buying a property that you can’t get a mortgage on is madness.  If you listen to them you could be missing out on some great opportunities that may be unmortgageable – but are still very profitable!

Traditional lenders have a long list of types of property they won’t touch.  These include:

  • Derelict properties or properties that are in severe disrepair
  • Properties without a kitchen and bathroom
  • Properties that have more than one kitchen
  • Properties with structural defects, damp, mould, wet or dry rot, wall tie problems
  • Properties with Japanese Knotweed
  • Non-standard construction properties – like the Wimpey No-Fines homes built after WWII.
  • Properties where there’s a boundary dispute
  • A house to flats conversion that has been done without proper planning permission (or planning permission has been applied for after the fact)
  • Properties under £50K in value
  • Properties with fewer than 70 years remaining on the...
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Cash buyer – with no cash!

Cash buyers get better deals.  They can negotiate substantial discounts on the asking price for properties, sometimes even as much as 50% below market value if there’s a really motivated seller.

The need to get a mortgage slows things down and can take months, so the ability to get the deal done in under a month can be very attractive to a seller who wants to get money out and move on.

I’ve explained how bridging works in many of my blogs, but to really see how it operates here’s a fairly typical case study.

The investor:  An experienced investor, but not with bridging finance.  He had about £38K in actual cash available.

The property for sale:  A former care home, originally a terrace of six houses, that had closed due to the owners being unable to afford to meet the Care Quality Commission standards.  It had been on the market for some time – with no interest.

The asking price:  £350,000

The plan:  To apply for...

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Buy BMV, then remortgage at full value

THE QUESTION

A prominent member of the community has said that you can buy a property below market value (BMV) e.g. 25% BMV £150k, MV £200k) using a BTL mortgage and then remortgage six months later at MV £200k – realising the 25% difference £37.5k.

You can then use that £37.5k as a deposit for the next deal etc.

Is it actually possible to remortgage after six months at the true MV and not the actual purchase price?

THE ANSWER

The question here is not ‘can you …’, but what you are risking if you do.

With their current lending criteria, no mortgage lender is going to give you a mortgage if you are transparent about your intent to redeem within a matter of months.  That covers both selling and refinancing.

That applies regardless of whether you are happy to pay any redemption penalty applicable.

Does it happen?  Without doubt it does.  There are many investors who see being 'economical with the truth' on their...

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No cash? No problem!

The problem with buying property as an investment is that you need to have enough money to put down as a deposit – and then it’s locked into your property for six months or more, until you can remortgage.  The days of ‘no money down’ mortgages are gone; you need a deposit to get any mortgage these days, usually 25% of your purchase price.

At this rate you’ll be lucky to add two properties a year to your portfolio, unless you have a big nest egg.

The secret is not to lock your capital into a mortgage, but to use creative financial packages specially developed for property investors.

Do you fit the buy-to-let lender’s typical profile?

Don’t lenders love property investors, because they have plenty of assets so their mortgage is secure?

No!

Buy-to-let lenders like their clients to have a nice, secure full-time job earning a minimum of £25,000 a year and have their own cash for at least a 25% deposit.  If you have too many...

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Isn’t bridging finance an expensive option?

bridging finance Sep 10, 2018

If you don’t have a big wad of cash sitting in your bank bridging finance gives you more flexibility and, with the right bridger, much better deals.

Is it more expensive than a buy-to-let mortgage?  Yes, but it’s not more expensive than a joint venture where your finance partner will expect a big chunk of the profits or from using overdraft or bank loan facilities.

Also it allows you to buy properties that any mortgage lender would consider unmortgageable – even though there is considerable profit in them.

In terms of the monthly cost of finance it’s definitely higher than you would pay for a high street buy to let product but you can’t really compare the two.

The normal cost of bridging finance is typically 1% per month, but it can be cheaper, even down to 0.5%, depending on the property.

Usually you’ll agree a period for the bridging term.   it’s a buy to sell where the investor is very confident of a quick sale, that term...

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How do I leverage my equity?

bridging finance Aug 30, 2018

THE QUESTION

I have a mortgage-free rental property that I want to raise capital against for another BTL.  I want to be able to find a BTL property and to quickly be able to raise capital against the existing property, so I am able to secure the new BTL once I find it.

To go through the whole process of finding the right property, applying to release the equity on the mortgage-free property for the deposit and then waiting for the mortgage to go through on the new BTL seems like a long-winded process.  I could risk losing opportunities on properties that might want a quick sale.  Is there is a simpler way of doing this without the increase in costs of releasing the equity early and sitting on it for a few months before I find the next property?

THE ANSWER

We have been doing exactly this for years!  Bridging finance can be arranged in under 4 weeks, so you can delay incurring any cost until you find the property you want to buy, but then buy it fast, pretty much...

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Bridging myths

bridging finance Aug 20, 2018

Bridging finance is one of those subjects where the majority of people – even property people – do that sharp intake of breath and shake their heads.  It’s seen as expensive and ‘risky’ – akin to the kind of deal you might get into with one of those high-interest loan companies like Wonga.

It’s not.  You just need a little understanding.

Here are some the myths that need blowing out of the water:

  1. A bridger will foreclose and take your property.

With a reputable bridging lender (and I only deal with these) repossession is their last option not their first option.  They’ll work with any borrower who communicates openly with them.  If you think you’re going to run over term most decent bridgers will work with you to find a solution to repay your loan.  It will cost you more, but you don’t lose your investment altogether (although you will probably take the hit out of your profit).

Getting into...

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Building your property network

strategic planning Aug 10, 2018

Property investment can be a lonely career as so many people – who are not in it and don’t know much about it – consider it to be a mug’s game, risky and not a ‘proper job’.

I think it’s a bit like Twitter (which is also a network), people either ‘get it’ or they don’t.  I know lots of people who think Twitter is an ideal way to make contacts – and I know quite a few who think it’s a massive waste of time!  My social media expert friends tell me it’s an exercise in joining up the dots – it’s not who you know, it’s who they know.

I speak at many property networking events and they are generally well-attended, and I know there are a huge number of property investors who don’t go to networking meets.

Who do you want in your network?

Attending your local BNI or other business network probably isn’t going to be a huge help to you as a property investor.  You’ll...

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Development finance for first-timers

development finance Jul 30, 2018

If you’re looking at getting into new builds as part of your property investment, you need to get to grips with a different kind of funding.

You can’t get buy-to-let (BTL) mortgages for a new build and bridging lenders see this as a specialised area.  However, there are lenders who do specialise in development finance.

Before I go any further, we are not talking about building your dream home a la Grand Designs.  There are mortgages for people who want to self-build, but as a property investor, you will be looking for something different.

Development finance is usually for new build projects on greenfield sites, or demolishing an existing building on a brownfield site and rebuilding, or, in some circumstances, major conversions, but only if significant structural work is required.

How easy is it to get development finance?

First you will need to jump through some hoops!

Number 1 is experience.

Development finance lenders need to be confident that you know what...

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