How do you recycle your cash?

THE QUESTION

I have converted an end-terrace into two flats and these are both listed for sale. The building is presently owned by the Ltd Company as one freehold, unencumbered, with individual leaseholds to be drafted to prospective purchasers once sold.

Whilst I wait for these to sell, what options exist for raising finance towards the purchase of the next project?  What LTV ratios and lending rates could I expect to be offered?  Assuming that any form of traditional bank lending is a non-starter, what type of lenders could I approach?

Having all cash tied up in this one asset obviously results in quite the large opportunity cost!

THE ANSWER

Leveraging your cash into the next deal is the perennial problem for developers and there is a simple answer to your conundrum, but if you are thinking of using a mortgage, forget it, it’s a non-starter.  No mortgage lender lends when they can see the property is on the market to sell.  Nor do they lend when they know you are going redeem their mortgage within a few months  

So, if mortgages are not the answer, what is?  Bridging finance.  Bridging is specifically short-term finance where the lender expects to be repaid in a short period of time. There is no need for subterfuge; you can be completely transparent about your intentions. 

You will be able to borrow up to 75% of the market value of your two flats combined, rates will vary bridger to bridger, but expect it to be in the region of 0.75% - 0.95% per month. If a bridger particularly likes your deal it could even be a bit cheaper than that.

There are even specific bridging products for this scenario called Post Development Finance, but the minimum loan for some of these may be higher than your property is worth.  

If you cannot raise enough cash from this to buy your next project in its entirety, bridgers can also extend their lending to the property you want to buy and lend up to 75% on that.  This is called cross-collateralisation and it means that it is possible to cover -

• 100% of the next project purchase price
• All of the refurb costs
• Any stamp duty payable
• The interest that will accrue

Apart from valuations and legal fees, you may not need any more cash to jump straight into your next project as soon as you find it.

If you haven't used bridging before, then you will need to wise up quickly to avoid making some potentially costly errors.  Better still, align yourself with a highly experience bridging broker, but choose wisely.  Very few mortgage brokers, whilst they may be great at mortgages, have much experience of bridging. You should consider working with a broker that

• Has talked bridging daily for the last decade
• Has brokered hundreds of bridging loans
• Has been teaching the recycle your cash way to use bridging intelligently at the Ninja Investor Programme since 2013
• Can not only broker your deals, but mentor you on bridging
• Has a YouTube channel with an ever increasing number of bridging video tips.

Yes, that would be me!  If you have a similar challenge, give me a ring on 07889 526979.

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