How to Use Bridging Finance to Quickly Grow a Property Portfolio
-
with Rory O'Mara
Rory is the Owner of Closed Bridging Finance which provides bridging, development, HMO and Auction Finance from £26,000 to £1M for both commercial and residential property.
Bridging loans are a way of leveraging money. The more access you have to finance you have the more projects you can take on at any one time and the more money you can make. But you need to make sure you understand the terms and conditions of these loans properly. If you make a mistake it can be very costly.
Amy: Have you got any advice, Rory, on how property investors can use bridging finance to grow their property portfolio? Is there an effective way to work with bridging finance?
Rory: So, really, the savvy investors that I've worked with understand one key thing and that's leverage. They leverage everything, their people, their network, their resources and then they start to look at leveraging money.
When we talk about leveraging money. Can you borrow more money without it being too risky, to do more projects?
So, if you had one... Let's say we found a buy-to-let property with a £100k purchase price, it's run down, you need to spend, maybe, 10 or 15 thousand pounds to refurbish it.
If you are able to borrow as much of that money, either through debt or equity, which we talked about earlier, therefore, you can do more projects.
If you can do more projects and each one is profitable... So, your goal might be to either retain some of the assets or sell them or a mixture of the two. So, bridging gives you the ability to do... You can leverage more which means you can make more money on the right type of project.
That could be buy-refurbish-refinance or buy-refurbish-sell. Very, very simple.
What you need to be clear on, is, if you're looking to either retain the asset or sell on, we do have what we call the Six-Month Rule. Some lenders are cautious if you refinance within the six-month period. So, you just need to be mindful of that. It can be an issue with some lenders.
The other thing is that you need to be very much aware of the terms and conditions from that bridging company. So, sometimes the rates are incredibly attractive ie. they are low but they are low for a reason.
If you run a really short-term bridge and you didn't repay within, say, 6 months, you probably would have been better off taking maybe a 9 or 12-month bridge because some of the bridging penalties, the rate may double.
And, in that example, I remember speaking to someone, some years ago. They had a very low rate. We said, 'Just send me the contract' and embedded on page 5 of the contract it basically said, the bridging penalty rate will double and go back to the date of the inception of the loan, which basically meant, from the very, very start, you're going to pay way more than you thought you were going to. And so, again, you need to understand that.
So, I think it's a great idea for more leverage.
Amy: I agree. Thank you.