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Bridging finance for beginners

property investment Mar 30, 2019

Even at property meets people run in the opposite direction if anyone suggests that bridging finance might be the solution to their financial challenges.  

Other well-meaning investors will advise you not to touch it because it’s too expensive.  They’ll warn you that you’ll lose your shirt - or try to frighten you off with other prophecies of doom.

So here’s a question for you:

Does bridging finance live in your ‘scary box’?  

If you’re an investor that’s never used bridging it probably does.

We all have a scary box and what is in mine are professional people, i.e. solicitors and mortgage advisors who advise people not to use bridging finance.  I find it amazing that people who should be knowledgeable about property don’t understand that, in the right circumstances, bridging finance should be your first choice, not your last choice.

What is it about bridging finance that’s so scary?

It’s perceived to be expensive with very high interest rates.

Bridging rates are significantly higher than mortgage rates.  You could pay three or four times the interest rate that you’d expect to pay on a BTL mortgage.  BUT, in a number of cases, the property you wanted to buy wouldn’t be mortgageable anyway.

Bridging is not entirely about the cost – it’s about the opportunity to profit it opens up.

Understanding how to make intelligent use of bridging will move you from the fog of the mortgage buyer mind-set to the clarity of a cash-buyer mind-set (and you don’t need an abundant bank account to get started).

Think of it like picking up a telescope and looking down the wrong end.  While you’re focusing on the cost of bridging you’re missing what you would see if you looked at it from the other end and could see the profit opportunity.  Sometimes such opportunities can be substantial, even massive.

If you could make a profit of £40K, but bridging finance cost you £10K, is that a deal you would do?  Obviously, you must do your due diligence on the deal, I’m not suggesting that you take unnecessary risks.  If your deal is risk-managed and controlled, you will be taking no more risk than you would have done with a mortgage.

Why use bridging?

  • You can buy property faster – because bridgers move faster.  This lets you beat other buyers and can turn your property purchase around in less than a month (sometimes in a few days).
  • You don’t necessarily need a big deposit.  If you use the right bridger you can borrow against the actual property’s value, while negotiating the actual price below market value.  This will cover more of your up-front costs.
  • You can buy properties from auction because you can easily meet the typical completion requirements of 28 days.
  • You can buy repossessions from mortgage lenders who have properties with vacant possession – and they just want to get their money out.
  • You can buy unmortgageable properties – many of which have significant profits in them.
  • You can refurb before completion and turn your property around to get your money out fast.

Bridging gives you the ability to do all of these things.  In other words, you can make more profit, faster and get your cash out of the deals to use on your next purchase.

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