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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 like a cash buyer would.

Your first reaction is probably ‘Oh, but bridging is soooo expensive’.  To the uninitiated, it is, but savvy investors understand the power of bridging to get you into deals that would otherwise be beyond you.

The big mistake that many people make with bridging is to carry on negotiating just like they do when using a mortgage.  If you are buying at the speed of a cash buyer you need to negotiate like a cash buyer.  Smart investors can often reduce the purchase price by the cost of the bridging loan (or even more, depending on the property), just by negotiating to complete fast at a lower price.

With an unencumbered property as additional security you can buy your next property with no cash down.

By borrowing up to 75% of the property you are buying, plus up to 75% of the property you already own, you can borrow

  • 100% of the purchase price of the new property
  • PLUS all of the refurb cost required to modernise/upgrade it
  • PLUS stamp duty and other buying costs
  • PLUS the interest accruing

However, don’t use bridging if you only intend to buy ready-to-rent properties, then it WILL be expensive.  It works when you buy properties you can improve in some, then refinance onto a mortgage.

There are many other little-known strategies that make bridging an impressively powerful tool for an investor to have in their locker.  I have been teaching these on my workshops since 2013.

Our brokerage has arranged hundreds of bridging deals for investors in recent years.

 

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