Most people who embark on property investment are not cash rich. Usually they have successful careers or may have run a business and have built up substantial equity in their own home, but don’t have massive savings.
To get started in property newbie investors often decide to release some of the equity in their own property to put down deposits on others. Property values are rising so the more properties you own, the more value you’ve got – and the price rises will go a long way to recovering the equity you’ve released. It all makes sense.
If you have more than 75% equity in your property then you could remortgage and get a chunk of cash out ready to buy your next property. Then you have to find that property – and that could take a while. So the cash is in your bank doing nothing and you’re paying interest on a bigger mortgage. Not so sensible, perhaps.
You could negotiate a loan against your property with your bank – but although possible, it’s going to take a while, even if the answer is ‘yes’, banks are not known for the speed of their decision making.
Effectively you want to be able to operate like a cash-buyer to get the best deals – and to do that you need cash. If you don’t have actual cash released from your equity and your bank doesn’t allow you the flexibility of fast financing, where does that leave you.
The answer is Bridging Finance.
If you’ve taken a sharp intake of breath and are thinking ‘That’s very expensive’. Just take a moment to consider.
For your main residence, yes, it’s very expensive – and not a strategy I’d recommend. But if you need money fast to buy a property that a traditional buy-to-let (BTL) lender wouldn’t touch and operate like a cash buyer, it’s a very efficient means of getting what you want.
Bridging lenders can move fast
Bridging that is based on equity in your main residence isn’t dependent on your ability to make repayments so is virtually a certainty
You won’t need to complete any income v. expenditure checks or provide proof of income
It’s not based on monthly payments
You can borrow enough to cover your purchase and at least some of your refurb costs
Some bridging lenders will lend on the actual value of the property, regardless of how much you actually pay for it
You can get all your money out after you’ve refurbed – whether you then sell the property or remortgage it as a BTL.
Is it more expensive than a traditional BTL mortgage? Yes, but is much more flexible and faster to obtain (we’re talking less than a week if necessary).
Is it more expensive than using cash? Yes, but if you don’t have actual cash, it gives you the ability to operate like a cash buyer.
If it more expensive than releasing equity from your existing property? That depends on how long you end up paying more interest on the additional mortgage total. If you’re smart and turn properties around quickly, you’ll actually end up in a situation where you can put that money back into your home AND have enough to continue building your property investment profitably.
Find out more on the one-day Recycle Your Cash Property Finance Masterclass