Bridge loans and Real Estate Investment: Match made in heaven ...

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As the world economy slowly starts to get back onto its feet, the property market is usually the first market that shows improvement. As young investors turn their back on the stock market, a lot are using buy-to-let properties as a pension for later life. The Stanford Business School looked at ?Depression Babies?, and how when young people see markets collapsing at a young age, they are less likely to take risks with their money throughout their lifetimes.
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Bridge Loans

Put simply, a bridge loan is a way to allow firms and individuals access to credit by borrowing against assets already owned. Bridge loans have been around for a long time, primarily used in the property market to prevent buyer chains collapsing at the last minute, the market has now developed and matured into a suitable way to borrow for expansion.
Auctions

Many people find a great investment opportunity at a property auction. Due to the circumstances, the estate is likely to be sold in a hurry meaning that not as many people will get the chance to view it and decide if they would like to make a big. Also buyers define the price instead of the sellers, making this a prime opportunity to get on the property ladder or develop your portfolio.

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However, due to the nature of the auctions, payment is usually required within a month, making attaining a mortgage very difficult within this time frame. A bridge loan can help you pay for the property at auction and give you the breathing space to apply for a mortgage without such a rushed timeframe. This is one of the key selling points of bridge loans and the reason the market is taking off in a big way.
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Remember, bridging loans are not always the correct option. They are short term and if it is unlikely that you will be able to source a mortgage, bridge loans are not a viable option longer term. Always make sure you get the property valuated and ensure it is structurally sound.
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Renovation

An ideal use of a bridge loan is to buy properties which you would struggle to get a mortgage for, such as houses in need of renovation. If the property is in no fit state to rent, bridge loans can allow you to borrow the money to purchase the property and renovate, ensuring that the house is now habitable and you can prove you will receive rent. This allows investors to have access to capital to develop what are seen to be risky projects by the bank.

Alternatively, it could even remove the need for a mortgage altogether. If you buy a house that is in need of repair with a bridge loan, you can renovate and boost the value of the property, allowing you to resell and pay off the loan and make a profit that can be reinvested in another project.

What is the process of obtaining a bridge loan?
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A good quality bridge lender will assess the resource that you are borrowing against and send an independent surveyor to value the asset. This will make up the loan to value (LTV) ratio that you receive, which can be anywhere between 40 and 80%.

The lender will also ask for an exit strategy. Bridge loans are for short periods of time and can become an expensive option if you do not replace the bridge with a more long term financial option. This could be selling the asset you have developed or securing longer term finance such as a mortgage.

The biggest attraction of a bridge loan is that it is very quick, with finance usually secured within one week. Lenders usually look further than simply the asset worth and credit ratings. They will be keen to work closely with you, offering advice and ensuring all commitments can be kept.
Match made in heaven?

Bridging loans and property go together so well, due to the high amount of equity which is stored within them. As the market matures and more lenders enter the market, bridge loans are becoming increasingly useful to property developers who are looking to start or boost a portfolio.

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• Bridge loans allow investors to purchase property at auction, due to the speed and dynamic nature of them
• Renovating a property using a bridging loan can be a useful way to increase the value and again source longer term finance or resell at a profit.
• The loans are a short term option but are very useful and should be considered when expanding your property assets.

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Written by Jonathan on behalf of Balmoral Bridging who offer bridging loans and arrange business related bridging finance, usually within 5 days.

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