Cash or bridging?

THE QUESTION

When you’re buying investment property for BRRR is it worth buying for cash, do it up and remortgage and pull as much money as possible, rather than using bridging and incurring interest on the loan?

Realistically am I in much better position buying for cash and offering speedy transaction to the seller? Can I expect to save money buying cash in today’s market?

THE ANSWER

Nobody should consider using bridging loans when you have the cash sitting in your bank earning diddly squat interest. When you factor in all the fees and interest, bridging will cost you approx. 10% of the purchase price over a 6 month period. So, saving that cost is going to increase your bottom line profit on a deal.

Buying for cash should enable you to make lower offers but that will only really work a) with sellers who are in hurry to sell and b) for properties that are in greater distress than those needing no more than a quick refurb.

Sellers in no hurry to sell will just reject low cash offers and sit and wait for higher offers to come in even if the sale will take longer due to the time it takes to process a mortgage in today’s economic climate.

Light or cosmetic refurb properties are in great demand currently, so tend to receive multiple offers close to or even over asking price, so making cash offers on these will not mean you get the property cheaper, just you can buy it faster.

BRRR won't work in terms of pulling your cash out at the back end if you overpay at the front end because the uplift in value will be too small to achieve that.

To make your cash really work, you need to find sellers who need to sell quickly and properties with bigger problems than just needing a refurb. Unmortgageable ones will be the best in this respect, just make sure you can fix whatever the problem is.

For those without a pot of cash big enough to make this happen, bridging is the other alternative to achieve the above. Clearly you need to amend your offer to account for the cost of bridging. Time wise bridgers are geared to release the money in 14-28 days, which is why it is used extensively to fund auction purchases.

In terms of completing the sale as fast as the seller needs it, bridging puts you pretty much in the same boat as a cash buyer from the seller’s perspective.

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