bridging Finance have you ever wondered what it is and what people use it for perhaps you know what it is but you don't yet have any experience using it well in this video I'm going to cover all of these topics and I'm going to explain how investors are using it to scale property portfolios quicker for anyone that doesn't know bridging Finance is a short-term financing option used by investors and by companies as an interim financing option until either long-term financing can be secured like a refinance onto a fixed long-term mortgage product or until a property is sold for profit and then the bridging debt is repaid for example if I draw it out for you let's say that we find a rundown property that needs work it needs money spending on it and I want to take it to the way where it's going to be a glamorous looking pristine house worth lots of money well I might use bridging Finance in order to do that this is this middle section here and then when we either refinance or sell is when we're going to then repay our bridging debt so why use this shortterm option why not go straight to a longer term product well bridging is most commonly used by investors and Developers for purchasing sites or purchasing properties and they want to do that with speed and also being able to buy properties that require considerable amounts of work and refurbishments in fact let's look at some of the other reasons and benefits to using bridging now first off absolutely has to be speed I'm even writing that one with speed bridging Finance is typically a lot quicker to arrange than a standard mortgage product and although some of the process might be very similar in the sense of submitting an application getting a valuation carried out Underwriters reviewing your personal circumstances and so on overall if you use the right lender then bridging is going to be a much much quicker process for purchasing properties that are below market value in distress situations or are going to maybe even go to auction with short timelines well bridging Finance is 100% a great product to fully utilize number two is going to be properties that need work or I could even say or unmortgage I'll just put UNM I'm sure this doesn't need too much explaining but many new property investors learn about the BR strategy or the flip strategy and they assume this is all done on a longer term mortgage product a more traditional product and although this can be done it's a it's a gray area if the property is in poor condition then the lending will often be refused and if the investor is doing these projects on a regular basis then it's definitely advised that you don't keep switching on andof mortgage products and instead utilize the benefits of bridging Finance once again number three is going to have to be larger loans because whether it's larger sites or a larger loan to value debt bridging loans come with a level of flexibility and bridging companies are often willing to review it Case by case rather than a one-sized fits-all approach like many typical mortgage products and lenders last but not least number four is going to be alternative lending options because bridging Lending ERS are willing to lend against properties that High Street lenders typically wouldn't and it's also possible to get lending based off the security of other properties that you already own within your portfolio so those are the benefits right there now it would only be fair to discuss the cons of using bridging as well because it's not all sunshine and Lamborghinis in property in fact money is often made in property because someone is willing to take on more risk more stress and potential uncertainty than someone else's and that is where the value is derived we often say risk equals reward if it's executed correctly and that's absolutely true so here are the cons to consider with bridging number one is going to be that loans are secured against property bridging loans are a secured form of borrowing so you need to put up an asset against the loan whether this is the property that you are buying or whether this is a property that you already own some form of Security will be needed and used to assess the viability of your lending and this does of course mean that you risk losing that asset if something was to go wrong and if you are unable to repay the bridging load number two has got to be higher interest rates so I'm terrible at writing and thinking at the same time but higher interest rates as I've just mentioned speed and flexibility are some of the benefits to bridging Finance but that does of course come at a price you see you pay for the convenience of fast and flexible Finance with a higher interest rate and as of the time of making this video interest rates are typically between 7 and 1% interest per month depending on the lender and the state of the market Etc this interest can be paid in three different ways monthly rolled up or retain p as you can imagine monthly is paid during the servicing of the loan by monthly interest payments rolled up is where your interest payments are added to the loan and repaid at the end and lastly retained is where the lender borrows the interest from you upfront for an agreed period of time and when the loan is paid back any unused interest is returned to you most commonly I always tend to see retained or paid monthly next up number three has got to be fees now I know what you're thinking you just talked about money you just talked about higher interest rates but that's your interest rate that's your monthly interest you got pay on the debt there's all these fees around it as well bridging loans can of course come with a range of these added fees much like any Finance product and this is something that you need to factor into your deals to make sure that they are financially viable when you're running your numbers fees can include Arrangement fees valuation fees and even legal fees as well as you often having to pay for a third party solicitor on behalf of your bridging lender and potentially any other Administration or money transfer fees along the way so there is a lot of different fees and then last but not least is risk lovely word risk usually bridging Finance has a short term of let's say 6 months 12 months or 24 months depending on the offer from the lender at the time and the type of project that you're going to be working on most typically investors will take out a 12month loan term on a br or a flip style project and although this seems like a long long time the months can quickly disappear and if something unexpected comes up or something goes wrong or the project takes far longer than you expected well you run the risk of not being able to pay back your debts and being hit by large penalty fees so there's the pros and the cons hopefully you feel like you have some kind of understanding about bridging Finance right now after watching that first part of the video but maybe you watch this video to get a better understanding of how investors use it to grow a portfolio if so please continue watching and whil you're at it don't forget to follow me over on Instagram if you want to learn more about my personal portfolio my updates because I share more insights over there when it comes to building a property portfolio most investors that I speak to have the same issue without even realizing it the main factor behind their portfolio not growing quicker is their access to continuous great property deals to buy I've recently made a video on that topic which I will link somewhere around here but actually regardless of whether you have let's say 20,000 or 120,000 let's say this is two different people 20 or 120,000 the situation is the same more deals are needed to grow quicker and at some point even with this situation more money is needed too let's say that these are two different investors if they had the goal of buying and let's say flipping I'll just put a house symbol houses over the next 12 months then they would actually face very similar problems they would face the following problems let's say for deal number one we wanted to purchase an 8,000 property I'll put purchase price the refurb is going to be 30,000 and the sale price because we're flipping the property so I'll put end value but the sale price is going to be 50,000 perhaps we even have some fees £10,000 when we're talking about fees let's say stamp Duty solicitors survey estate agent costs that all probably is encompassed in about £10,000 worth of fees so to complete this project we would need cash of around £120,000 okay so we got the 80 plus the 30 plus the 10 obviously what we want to sell it for is our 150 now we would need cash of £120,000 if we wanted to buy this outright this guy can do it the guy can't the other alternative is bridging and obviously if we went down the route of bridging I will do this because I know the math but if we take a deposit on bridging we add our refurb we add our fees then we might be looking at let's say not 120 but actually 50 to 60,000 approximately which is much more achievable brilliant okay this deal is now far lower barrier to entry because of bridging thanks bridging but investor a this guy with £20,000 still has a funding problem so that brings me on to the next benefit you see investor a with £20,000 is still sure almost £40,000 of this in order to complete the project and this is why bridging is a wonderful product because it can allow the investor with little money to go and borrow private funds from another investor and put that alongside bridging to do the deal now you wouldn't get away with trying to do this alongside a traditional mortgage they wouldn't accept it whereas brid in wood now this method of course has a lot higher risk level but it's commonly practiced by many property investors throughout the UK so the main consideration for investor a here is will there be enough profit once he factors in the bridging costs once it factors in the costs of privately raising the £40,000 to get them to £60,000 they should be the main considerations and then after that it will be will I be able to hit three Deals in a year to be able to complete my goal of flipping three properties alternatively we have investor B okay investor B has £120,000 and he has a similar but different situation you see investor B he has the full 120,000 and therefore we can just go ahead and complete the deal in fact they can complete it more profitably because they don't have to raise money they don't have to pay for bridging Finance they can just get into the deal buy it do the works sell it and make the full £30,000 profit from this flip deal however let's quickly revisit our goal here which we said was flipping three properties over the next 12 months if we go ahead and tie all of that money up that £120,000 into one property project that could take 8 to 10 months on average for that money and that profit to be released meaning that we would actually only have one property purchase that would be done during the next year investor B's goal is not met therefore in order for this investor to hit the goal he needs to split that £120,000 up into pots of money and put it alongside bridging in order to be able to acquire enough projects in a shorter time frame okay if we think of our bar of money here as £120,000 instead of taking all of that and put it into one project we need to split it up into to pots of money and then we need to take that each one pair it with bridging and now we can move towards doing three Deals in a year and that is how bridging Finance can be used it's how investors make more money or grow portfolios quicker because they can split up their funds they can buy more projects at once rather than putting it all into one deal or like investor a not even having the money in the first place to go and do it so please share any personal bridging experiences in the comments below I'd love to know what you think of this whether you agree with me whether you disagree with this example as always I appreciate you watching and I'll see you next week
