Bridging Finance

[Red Wood]

Does anyone have an experience with bridging finance. Considering renovating a property in the hope of turning it around quickly.

Experience from others would be helpful. pros cons pitfalls etc

 

[IANL]

Some private High Net worth individuals will cover these types of deals. (called swing money in some quarters) ie it enables the borrower to swing the deal in their favour. Typically they come at a high rate of interests and will often take security over the project assett. Sometimes it will be a % of of the project proft with a minimum. Timeline for loan can be quote short and if not paid back in the required period may mean a forced sale to repay the 'swing loan' It's all about how how pitch the offer to the lender.

They can work really well, typically quicker than banks. worth asking your solicitor / accountant if they know any of their clients with surplus cash if they that might be interested.

Most people would look for you to have some money invested in the project as well, this ensure that you won't just 'walk away' start to go off track

The pitfall is in your word 'hope' market conditions can affect the speed of doing the eventual the eventual sale. You need to factor that risk in.

I would alsways look at deals like this but would ensure that I can gain control.

Hope that helps

 

[Mark T Jones]

I'm not really knowledgeable about rates and terms etc.

You could take a quick look at Bridgecrowd or talk to a broker who specialises in the field - I believe @Gordon - Commercial Finance knows a bit.

From customer feedback, in and out fees are areas to be vigilant on

 

[Gordon - Commercial Finance]

Does anyone have an experience with bridging finance. Considering renovating a property in the hope of turning it around quickly.

Experience from others would be helpful. pros cons pitfalls etc

Bridging can be a very useful and flexible product if you do indeed manage to "turn it around quickly".

Pros - no monthly servicing cost; can be as short term as 2 months; quick and often easy to secure
Cons - if it drags on then interest costs can be big; usually around 30% of purchase price required from borrower as a deposit; fixed fees (such as legals) can drag on your margin for smaller advances

Pitfalls - fixed fees mentioned above suck up a huge percentage on loans less than £100k. If you're above that, then it should be golden, but take care for smaller amounts that there's still margin left.

 

[Red Wood]

Some great information there, thanks all.

There is a potential opportunity I have spotted with a property, obviously if the vendor won't accept my offer, then I would walk away as it needs to be worthwhile with a clear Margin in a worst case scenario.

I have a niggling feeling though that it sounds too good to be true. I.e, is it really as easy as finding finance to purchase at below market value with a clear profit margin after a renovation.... Surely everyone would do it?

 

[Mark T Jones]

Market value is the price people are prepared to pay - so in reality 'below market value' only exists if you have somehow closed access to the market.

Usually the 'below' but reflects in the planning status or technical/practical challenges in developing the site.

 

[Gordon - Commercial Finance]

Some great information there, thanks all.

There is a potential opportunity I have spotted with a property, obviously if the vendor won't accept my offer, then I would walk away as it needs to be worthwhile with a clear Margin in a worst case scenario.

I have a niggling feeling though that it sounds too good to be true. I.e, is it really as easy as finding finance to purchase at below market value with a clear profit margin after a renovation.... Surely everyone would do it?

It seems like everyone does do it nowadays! Or at least they talk about it on Instagram...

It is quite easy, but the reason most don't do it is that although there's ready access to finance, borrowers always need to put in something themselves, which many can't and/or won't do.

 

[Red Wood]

There are many properties I have seen since I've just bought one for myself (to live in) that offer opportunities to uplift and add value/renovate if bought at the right price. I have the capital to put some skin in the game, tradesmen for brothers, and access to trade materials, it all just seems a bit too straightforward with bridging?!

Yes, the fees and interest are high, but a properly costed deal seems a bit too straightforward if the finance is there for the taking. Maybe I'm too used to the struggles of our main business over so many years that I associate all gains with pain and stress?

Is it more common to service the interest monthly or settle on a sale and if settled at the end is the interest calculated on the deferred interest as well as principle?

I may well give you a call Gordon, you can run through your offerings.

 

[Gordon - Commercial Finance]

Yes, the fees and interest are high, but a properly costed deal seems a bit too straightforward if the finance is there for the taking. Maybe I'm too used to the struggles of our main business over so many years that I associate all gains with pain and stress?

Is it more common to service the interest monthly or settle on a sale and if settled at the end is the interest calculated on the deferred interest as well as principle?

The fees and interest are no high when you think of it as short term funding. Yes its more expensive than a mortgage, but its far cheaper than many other short term financing options.

Its more common to settle the interest on exit, and interest is calculated on the principle borrowed and only incurred for the actual term of borrowing.

Give me a ring when you like and I will have a chat about it. I think my mobile number is on one of my websites or send me a PM