The stress of securing funding for ripe real estate investments in a time constrained environment is a common predicament that requires a calculated solution. Bridging loans offer the flexibility and efficiency needed to buy time and complete transactions in the expeditious manner necessary. A bridging loan is a short-term financing arrangement secured against your property to help “bridge” a timing gap.
Consequently, bridges prove invaluable in situations where urgent cash outlay is vital to make a purchase, refinance quickly, acquire land for a development, or meet an auction deadline. Bridging finance can be obtained promptly, often in a matter of weeks, to aid resolving the time centred quandary you may be in. The tenor of a bridge lies anywhere between three to twenty-four months depending on the asset and can be secured via a first or second charge on the property. In view of the above, this article will outline the various instances in which bridging loans provide a timely and convenient solution to save your next property deal.
BUY-before-you-SELL (“Broken Chain”)
A common issue one encounters when needing to complete the purchase of land or piece of real estate is lacking the funds at present as they await the sale of another property to release the capital required. This creates what is referred to as a “broken chain”, where there exists a disconnect in the timeline of cashflow. A bridging loan fills this gap by providing the funds needed to purchase now, prior to the cash inflow from selling the existing property. Lenders are willing to finance this purchase given a clear exit strategy exists where the borrower will repay the bridge through the sale of their existing property.
Auction Purchases
Pursuant with mapping solutions to time constrained real estate transactions, a bridging loan allows you to complete the purchase you wish at an auction without enduring the lengthy and tedious process of procuring a mortgage. Upon completion of the purchase, a bridging loan leaves room to refinance onto the necessary buy-to-let mortgage or term facility required. Furthermore, a bridge offers the flexibility of retained interest and fees, allowing you to delay cash outflow during the holding period.
Development Exit Period
As a development draws closer to completion, the term of the finance provided to the developer for the project also nears as the lender expects repayment. The developer often relies on the sale of units from their project to repay their development loan, however the timing of such cashflow can be uncertain. This is where an exit bridge saves you from potential default by allowing you to repay the existing lender and provides the extended timeline needed to facilitate selling units in the property.
Portfolio Restructuring
A bridging loan can also prove beneficial when you hold a portfolio of properties that need refinancing, whether it is because you are locked into a handful of fixed rate mortgages, release equity, or need to transfer portfolio ownership. A portfolio bridge can be structured across multiple assets using cross-charges to raise capital, repay the existing debt and allow the time necessary to roll the portfolio on to the required new long-term products.
Refurbishments and Conversions
In situations where your property cannot secure a mortgage before undergoing structural work or renovation, a bridge can help provide the short-term capital necessary to invest in the assets’ restoration. The interest from such a product can be rolled up and principal provided for acquisition or refurbishment be repaid when work is complete by refinancing on to a long-term buy-to-let or commercial term facility.
Ultimately, the key takeaway is that a bridging loan offers an invaluable option in common time-constrained real estate transactions. By serving as a source of short-term liquidity to accommodate your timeline, a bridge can secure purchases of ripe investment opportunities in addition to equipping you with the means necessary to restructure your portfolio or refinance existing debt.
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