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Tracking down unmortgageable properties

bridging finance Feb 05, 2020

A smart investor is always looking for properties that are considered unmortgageable by the mainstream mortgage lenders.  Why?  Because the sellers know they can’t expect to get full market value for a property that doesn’t qualify for a mortgage. 

That means that the pool of potential buyers is MUCH smaller.  Consequently, they know they’re going to have to negotiate and bring the price down to make the sale.  We’re not talking about knocking off a couple of thousand here - but anything between 10-50% below full market value.

So how do you find these properties?

  1. Any properties listed with the online websites (e.g. RightMove) that are listed as ‘Cash buyer only’ - particularly if there aren’t any internal photos. That usually means things are pretty bad!
  2. Check out the property auction listings. Again look for ‘cash buyer only’ notes.
  3. Keep your eyes open in your local area for properties that have been...
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Isn’t bridging expensive?

bridging finance Oct 20, 2019

We have brokered hundreds of bridging loans, I also run the UK's best established (only?) training programme (the Ninja Investor Programme) to educate investors in the intelligent use of bridging.  But the minute you mention the word ‘bridging’, people who haven’t learned about it tend to say, ‘that’s expensive!’

Bridging interest rates are higher than most mortgage rates, BUT if the difference is not doing the deal or paying a little bit more and making a good profit then bridging isn’t expensive at all.  I’m always surprised that people prefer to borrow money from a Joint Venture partner rather than from a bridger - and then give away 50% or their hard-earned profits.  No bridger will take 50% of your profit.

The interest rate for your bridging loan depend on a number of factors that you don’t have much influence over.   When you find a deal, you want to bridge that specific deal.  The rate depends...

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Why bridging finance?

bridging finance Sep 10, 2019

Some people think bridging finance is expensive and costs more than it’s worth.  Actually, the returns on your investment far outstrip the costs when the deal is right – and it makes it possible to do things that mortgages don’t allow you to do.  That’s where the profits are.

It is always pragmatic to keep an eye on costs, but not to the degree that you become blinkered to the profitability in a deal.  If you were looking ta a £40,000 profit to be made in a deal, but a bridging loan would cost you £10,000 in fees and interest, reducing your profit to £30,000; what would you do?  Would you walk away or, having overcome your fear of bridging, take the £30,000 profit?

Using other people’s money, joint venturing, often referred to as JV finance is one way of accelerating your property journey, but that usually comes at a cost.  JV finance predominately involves giving away 50% of your profit to the person...

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Bridge-to-let finance - one lender or two?

THE QUESTION

I’ve heard that if you use the same lender for the refinance on a buy/refurb/refinance project you can get down-valued.  Does that mean you should always use different lenders?

THE ANSWER

There are very few lenders offering bridge-to-let products, essentially it requires a mortgage lender who is also happy to offer a bridging product and lenders like that are a rarity among mortgage lenders.

The advantage is that for a buy/refurb/refinance project, you can move seamlessly from bridge to mortgage without extra fees or needing to wait 6 months to apply to for refinance.

Bear in mind that, compared to a true bridger, the initial underwriting can take longer (massively longer with one B2L lender) because they are underwriting the mortgage at the back end to begin with, not just the bridging part. 

Also the mortgage rate at the back end may also not be as competitive, depending on the work you are doing to improve the property, as you could get by separating...

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3 Myths About Bridging Finance

bridging finance Jun 30, 2019

You couldn’t describe bridging rates as ‘cheap’, they 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, that doesn’t mean you should run away from bridging as a funding strategy for your property investments.

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).

While you’re focusing on the cost of bridging you’re missing 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? 

These are the three biggest myths about bridging:

  1. A bridger will foreclose and take your property

With a reputable bridging lender (and I only...

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A great deal, but cash tied up

bridging finance Jun 20, 2019

THE QUESTION

I viewed a property last week and negotiated from £85k to £73k, but unfortunately my funds are tied up in another deal.  HOW ANNOYING!

I was wondering if there is another way to fund this as would be ideal for the list of tenant buyers that I have.

THE ANSWER

Certainly there is another way to fund this - bridging finance.  

This is one of the aspects of bridging that I teach to investors, what I like to call 'no hard cash down' funding.

Let’s just say your cash is tied up in a property you bought for £100k.  Now you could get this second property for £73k, but you can’t do it because all your £100k cash is tied up in the first property.  So here's where bridging comes into its own

A bridger would give you one loan over both your first and second properties, often up to 75% of each property, but you won’t need to borrow that much.  They would typically lend 75% of the £73k and the balance of...

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Bridging finance for beginners

bridging finance 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...

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Honey, I shrunk the deposit!

When it comes to investing in property the big challenge, especially for newbies, is getting enough money in the bank to pay that all important 25% deposit.  Depending on where you are buying property that can run to many thousands of pounds.

So what if you could trim that 25% down to nearer 10%?

Here’s the strategy:

Step 1:  Complete the purchase – using bridging finance rather than a BTL mortgage.  Some properties won’t be mortgageable anyway, but that doesn’t mean they’re a bad buy.

Step 2: A quick exchange of contracts.  This can be done as soon as your loan is approved and as soon as your solicitor is able to arrange it.  We should be talking days here, rather than weeks and certainly not months.

Step 3: Quick completion.  Again, that will be as fast as your solicitor is able to do it. Often this will be in 28 days or even quicker.

Step 4: Execute your exit strategy from the day of purchase.  This means if...

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Buying your first property

bridging finance Nov 20, 2018

THE QUESTION

I’m looking to buy my first house and I have £40K in cash ready to go.  Do I:

  1. Buy it outright. Do the full refurbishment (I’m looking at 12 weeks).  It will be worth £80k once complete and rent for £500pcm. so get a mortgage at £75K  LTV, once it’s ready to let.
  2. Apply for a mortgage at £75 LTV and wait at least six months to get my equity out.

Or is there a better way?

THE ANSWER

The argument for buying with cash

  1. You can buy much faster than getting bogged down in a mortgage application process
  2. If you can buy faster, you should be able to negotiate to buy cheaper - to a degree
  3. During the refurb period you have no monthly payments to make and incur no interest
  4. Once refurbed, value uplifted and tenanted you can apply for a mortgage. Wait six months if you want access to preferential interest rates; don’t wait if you don’t

At any point in between if you manage to find your next deal and...

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Can you get 100% bridging?

bridging finance Oct 30, 2018

THE QUESTION

Can you 100% fund with bridging an optioned project using planning gain as equity?

The project is a conversion of offices to residential, with planning for Change of Use.

The projected uplift in value is 35% upon consent. total circa £1m.

Although I have no actual direct experience, I do have a few very large client successes and similar smaller scale projects in my portfolio.

THE ANSWER

In terms of loan to purchase price, bridgers divide into broadly 3 camps

  1. Those that lend on the lower of the purchase price or value, exactly the same as mortgage lenders do
  2. Those that will recognise a value uplift, but put in a maximum loan to purchase percentage override i.e. the lower of 70% of value and 85/90% of purchase price. This would mean whatever value uplift you created they would still require a minimum of at least 10% of purchase price input from you
  3. Those that genuinely ignore the purchase price and lend on value

Of those, No. 3 is the rarest, but they do exist...

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