Scared of Bridging Finance? Here’s how you flip a property #Finance

few things are as misunderstood as bridging Finance it sounds scary and intimidating and puts a lot of property investors off of buying through auctions or cash

purchases with a normal estate agent it’s something where people fear high Interest Rates and it’s going to cost too much money or what if i can’t make those repayments on the property but actually it’s a wonderful product that if used right can be really

really powerful as a tool it’s a powerful asset that can help you generate a lot of money through flips and brr deals otherwise known as buy refurbish reFinance and

those higher monthly Interest Rates shouldn’t be a problem if you’re analyzing the deals correctly and also making sure that you’re making a Profit at the end of the project because you just factor that into the costs and ultimately it’s

going to allow you to purchase these deals that you otherwise wouldn’t have had access to so therefore it’s worth the cost when you factor it into an overall project so let’s explore the basics of bridging color: #1a73e8; text-decoration: none;">Finance now firstly the value that you can get in terms of the mortgage is more so based on the property than it is your Income so if you’re buying a residential property it is means tested on your Income

and then stress tested off the back of that but with a bridging Loan it’s more about the value of the property itself and less about you it doesn’t mean that they don’t consider your Income whatsoever because they do but it’s more about that

property and that’s what they’ll be considering secondly they will place a charge on the property like any other secured lending this means that if for example you default on the repayments and you stop paying back the interest or you can’t afford it or something goes wrong

whatever it is that they can sell the house or the flat or whatever it is you’re purchasing and they are the first people to be repaid the money therefore they make sure that they can recoup the funds that they’ve given you as the bridging Loan and of course you can

choose whether you pay the interest at the start as a monthly period or at the very end of the product which is really really interesting and unlike a normal mortgage where you might have it for 20 30 40 years with a bridging Loan it’s only designed to be used between 6 and

12 months you can have a little bit less you can have a little bit more but that’s why the Interest Rates are very different because it’s meant to be used for that short amount of time while you’re refurbishing or working on a property to then re

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance it onto a longer-term product when you compare the different interests on a normal residential mortgage you’re looking at around one to two percent at the moment in the

current market and that’s currently going up buy to let i would say is about two to three percent depending on your company structure whereas when you look at a bridging Loan that’s about eight to fifteen percent which sounds really scary but again if you’re

factoring that cost into the overall project then it’s just an additional cost and when you’re making tens of thousands of pounds of Profit on a flip project then really that’s not something that you should be really worried about so there’s a few

interesting points to mention about bridging lenders that’s a little bit different to the standard buy select mortgage or a residential mortgage so firstly as we’ve mentioned bridging Loans tend to be based more on the actual project or the property itself at its value

or it’s done up value depending what kind of bridge that you’re going for compared to a residential mortgage where it really is about you and your Income that you’re bringing in in terms of the household which then affects how much you can actually borrow so it

means that people on slightly lower Incomes can get a bridging Loan it doesn’t mean that if you’re unemployed you can get a bridge because that’s going to be very very difficult but it means that affordability is assessed very differently secondly

unlike a buy to let where the mortgage is stress tested against the rent in the area bridging Loans aren’t designed to be used while renting out a property therefore the lenders aren’t bothered about how much rent you’re going to get for it or whether

someone’s going to be in the property within 30 days and of course it’s pretty common for the house to be empty while a bridging Loan is used and the lender knows and understands this thirdly the condition of the property really doesn’t matter with a standard

normal mortgage buy select residential you have to have a house that’s mortgageable so it has to be structurally sound it has to have taps and basins and drainage and that is a really really big factor because if you don’t have a sink and running taps in a property it’s therefore

not mortgageable likewise if there’s no kitchen in the property again it’s not quite as mortgageable whereas for a bridging Loan that’s not a problem the lender won’t be concerned about that and lastly bridging

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance can be used really really quickly some people can complete in as quick as a week or usually the average i’d say is about three to four weeks which means it’s great for auction purchases and if

you’re in a rush and you need a speedy sale that’s the perfect product so why use bridging Finance it’s for a shorter term and it’s more expensive so

why and when would you use it well a lot of bridging Loans are used either for auction purchases where you need to complete within 28 days usually if you buy an auction if you do not complete after that specific time period then you can be subject to really really heavy fines but

mainly if you don’t want to hold a property for a very long time then you therefore either have to buy in cash because you don’t want to be getting a mortgage it’s costly it’s expensive and there are a lot of clauses against using mortgages for the short term so it’s

great if you’re wanting to flip a property or it’s not mortgageable there’s something wrong with it you need to bring it up to a good standard first and then you can renone;">Finance it onto a normal mortgage that’s also known as buy refurb reFinance and there is sometimes a rent on the end of that as well so that’s

brr or brr and that is a really really common property investing strategy that a lot of investors use it’s where you buy an unloved old property you do it up you add some value you can get some of that cash from the bridging Loan as well so you don’t need to fund the

whole thing yourself because some bridging lenders can base the actual Loan they give you off the gross development value rather than what you’re purchasing it for so there’s a little bit of leverage to refill the property and then re

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance at the higher value onto a brand new mortgage where you then repay off the bridging Loan get a little bit of Profit left and then the rest is

the deposit on the new value of the property sometimes you might see with estate agents that certain listings mention cash buyers only now don’t be afraid or put off by this you can still make an offer on a property that says cash buyers only usually that’s because they either want a

quick sale or there’s something wrong with the property and you can come in there with a bridge and that’s still perfectly okay so cash buyers still means bridging none;">Finance is okay for that type of purchase and a lot of investors don’t realize this and skip past all of the cash listings if they don’t have the money the main thing is just be honest with the estate agent tell them that you’re using a bridge but it’s

pretty much the same as cash most estate agents understand that if they don’t just quickly explain and say that you can still complete within a few weeks maximum it’s exactly the same as cash how much can you borrow on a bridging Loan well the amount really can vary and

in this particular product it’s really about the project itself there are different types of bridges that you can get some will be based on whatever you pay for the property now this is really important because when you get a residential mortgage typically they will send a value out to the

property and they will value it at whatever they think it’s worth however let’s say that you’re buying a property for two hundred thousand pound but actually you get it for 180. now when you get a mortgage that means that that valuer will take it at the face value of what

you’ve offered therefore you can only get a mortgage on 180 000 pounds even if you know every other house on the street sold for 200 but with a bridging Loan they will look at the actual true value of the house so if it’s worth 200 and you bought it for 180 they can

still give you a bridging Loan of 200 000 pounds because that’s what the property is worth even though you got it for less which means you’ve got 20k leverage in the middle to add a refurb and add some value onto the property another type of bridging

Loan is where you can actually get the gross development value or at least 75 of the gross development value of the property so if you know that property’s worth 250k they could give you 75 of that towards purchasing the property doing the refurb and then you can re

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance off onto a longer product on the other hand Valuations can be very very subjective and it means that you might be in for some disappointment if you’ve

over baked the figures and you’ve analyzed the property a little bit incorrectly it means that when the lender sends their valuer out they might actually value it at less than what you’re anticipating and the lender will take that Valuation at face value meaning

there’s no negotiation on the price we all do it we look at projects really optimistically and inflate all the numbers and try and make it really really work and squeeze the last few bits of pounds out for the Profit but you have to be very conservative and reserved when it

comes to analyzing deals and using bridging Finance that way if you’ve got a property that you know you’re being reserved on the figures but it’s still

making a Profit after you’ve considered fluctuations in the price in the sale price in the gdv and in the refurb cost then you really cannot go wrong because you’ve analyzed it in every stress test scenario also lenders will want to know a lot more about you as an

individual as well in a bridging Finance agreement they’ll want to know more about your experience have you refurbished a property before have you got a solid build

team behind you if you’ve not got that refurbishment experience if you’re converting a property into an hmo have you got any hmo experience have you done that large scale conversion before if you’re going from commercial to residential have you done that before and all these

really really matter and will change the end interest rate that you’re going to get they’ll also want to know about your exit strategies and notice that i said strategies there because they’ll want to know what’s option a but if option a doesn’t work what’s

option b if you’re converting a house into a hmo then all of a sudden you have licensing problems and you can’t get the license or you’re bought in an article for area and didn’t realize or something goes wrong they want to make sure you can still repay that mortgage and get

a reFinance by having multiple exit strategies and that’s really really important in the planning phase of the process they’ll also consider is the scale and size

of the project completable in the length of the term they’re going to give you so if they give you a four to six month bridging Loan and you’re doing a complete renovation commercials residential they’re not really going to give you that product because they know

it’s not going to be done in four to six months they’ll also be looking at is the final product going to be marketable or not is there a demand in the area for the products and they want to make sure that you’re going to be getting off of that bridge as much as possible if you opt

to pay the monthly Interest Rates then they’ll also be looking at your Income to some degree here because they’ll want to know can you afford those monthly repayments while you’re working on the project because the property itself isn’t

going to be bringing in money therefore they know and understand that those monthly interest repayments are going to be coming from you personally next is the fees now there are a few different fees to consider this is what really puts property investors off of using bridging

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance but as i’ve said multiple times if you factor these costs into the project just like you would for the refurb costs and the legals and the stamp duty if you’re

stacking up a deal and it works with the typical cost behind bridging Finance then you should not be afraid to use it because you’ve factored that cost into the whole

project so some of the fees that you need to consider is firstly the initial Valuation now this is usually between three to five hundred pound depending on who the lender uses secondly is the arrangement fee of the Loan which is typically around two percent of the

total value that you’re borrowing you usually have to pay the lender’s legal fees as well as your own on top of that and then when you’re looking at the end of the bridge you usually pay a one percent exit fee on top of everything altogether if you want to repay the bridge early

most lenders are okay this but sometimes there might be an early repayment fee so definitely check the t’s and c’s because a lot of Brokers will recommend go for nine months expecting you to repay within six to make sure that that six-month mark doesn’t mean that

you’re gonna be hit with any extra additional fees likewise if you’re over running the project and you need to extend the bridge they’re going to be more fees associated with that as well and then lastly is the Broker fee which is around one percent of the total

Loan value so it does sound pricey there are lots of extra costs and yes it is a higher cost product but if it’s going to make you a Profitable deal that you wouldn’t otherwise have had access to then why wouldn’t you go for it and use it

it’s a great product when you use it properly another thing to mention is that what you will be paid is actually the net amount of the Loan so let’s say you’re taking out an 80 000 bridging Loan rather than getting the full 80 000 pounds instead

they’ll take all of the fees off of the Loan straight away and then you’ll be left with for example you’re paying the legal fees and then you’re going to be paying some arrangement fees up front if that 80k then includes two and a half k costs you’ll

get a net advance which is 77 and a half thousand pounds and that is the amount of cash that you’ll have to play with as the actual bridging Loan now in terms of the interest there are three main ways to do this which makes it a really flexible product so firstly the interest

can be taken out at the start meaning if you’re going to be paying nine months on a bridging Loan you can just put that on at the beginning take it out of your cost and therefore your net advance is going to be a little bit lower so that might be 75 or 74 000 rather than the

full 80 which isn’t a problem because if you finish the project early and you want to get off the bridge after six months rather than nine and you paid nine months interest you’ll get that money back from month six to month nine that you haven’t used the bridge for some lenders

might charge for it but just check the t’s and c’s most are usually okay with this secondly you can roll it all up and pay at the very end again if you use six months rather than nine you’ll just pay what you use at the end of the project so you don’t have to worry about the

interest while you’re working on the project which means in theory it doesn’t sound as risky because by that point you’ve finished it it’s all good and you’re already refinancing it onto the longer term mortgage or lastly you can look at servicing the bridging

Loan which basically means you’re paying interest on a monthly basis like you would do for a normal mortgage so let’s say you’ve just purchased a property at auction today how do you actually get bridging

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance well landlord who have kindly sponsored this CashNews.co today have their own online none;">Finance lender it’s a really useful online bridging tool where you can get a decision within three minutes there’s no Broker fees and no early redemption charges after three months they’ll offer up to 75 Loan to value and the

whole thing is completely online which in 2022 can be a really really good help rather than having to send forms back and forth with a different lender or bank if you’re a little bit unsure or just want to learn a little bit more about bridging

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance from a specialist then you can easily give them a call and chat to the team and they will happily help you and guide you through the bridging process and talk you through the product in more detail when i was

working on my recent property project where i renovated a buy to let property built in the 1950s and made a 15 000 pound Profit i was debating whether to use bridging none;">Finance or just get a mortgage and fund the actual reefer myself and i used landlords online bridging tool to get the rates and get really good understanding and it was really really helpful you can check them out by going to lendlord.io or just check out the link in the

description and that will send you straight through to their bridging calculator typically with a little bit of back and forth it’s really easy to get a bridging offer from one week up to three to four weeks at the very very maximum depending on how fast you are and how fast the solicitors

are there are a few things that might slow you down to be aware of these and try and mitigate the risks firstly is the time it’s going to take to get a valuer booked into the property now if it’s taking a while to book an appointment or there’s access issues to the property then

that will slow you down secondly is how quickly your solicitors work so make sure you get a good trusted reputable solicitor who can deal with auction style purchases that are really quick thirdly is making sure that you provide and supply all the information that they need as a part of the

application the longer it takes you to gather documents and prove all of your circumstances and all of the project the longer it’s going to take to get that money and lastly is after all of this is how much digging the lender wants to do into you some lenders might go in to really really

extreme detail which means it’s going to take a long time others might trust you and they’re happy with what they’re seeing in front of them and don’t need to dig too deep into you or the project because they’re happy with what they’re seeing overall here’s

a few things to consider if you’re thinking or looking at bridging Finance firstly is can you benefit from the higher costs and fees of that financial product now it is

more expensive than a normal mortgage but it’s designed to be used in a very specific way and if your flipping a property having it for a short amount of time or you’ll buy refurbishing refinancing the property then it’s great because you can buy it you can do all of the

refurbishment on the inside and then reFinance at high value and pull out all of that cash or as much as possible when i worked on my buy to let deal the margins were

actually quite slim at the time which is why i decided to go for a normal mortgage and fund the refurb myself and instead reFinance in two years but actually now looking at

the figures and how strong it was i wish i would have bridged that property because i would have been able to pull out 40 000 pounds that is now trapped in there for the next two years and the second most important point is do you have a solid exit strategy it’s really important on a bridge

to get off of it that’s the whole intention of the product is to enable you to do something in a property project and then get off into the longer term financial products now you need to make sure that you’re thinking about multiple exit strategies if you’re going to be building a

hmo you need to make sure that if something for whatever reason gets in the way of that really complex project or you have issues in planning that instead can you convert that project into a normal buy to let property could you sell it as a flip as a normal family home and that is what’s

going to really protect you against any additional fees or issues with the bridging product hopefully this CashNews.co has put your mind a little bit more at ease and opened you up to the world of bridging text-decoration: none;">Finance i’m definitely looking at using bridging on my next project and i think it’s a great product that really enables a lot of flexibility and helps property investors grow as well in their businesses so i really really hope you found this

CashNews.co useful if you enjoyed this then actually check out my buy to refurb here this is the entire playlist where we go from creating the initial 3d renders doing all the deal analysis to then actually going into the property and you can see the before and after shots it’s really

interesting so definitely definitely check this out