The keys to successful bridging
THE QUESTION
I've taken out a fair few mortgages in the past and I’m comfortable with that kind of finance. I have no experience with bridging, so my questions are:
What are the key things to look for?
What would be considered a 'good' bridging deal?
What term would you normally look at, 3 months? 6? Is it easy to extend?
THE ANSWER
There are lots of advantages to using bridging (check out my last blog). A good deal where bridging works is one where there is an opportunity to significantly uplift the value, if bought at the right price
The term you look at is when you can realistically expect to be in a position to repay the loan. You set the term you want, not the bridger. It’s very easy to get wrong as investors often underestimate the time it will take for a project to go full circle. For a flip you need to consider
- How long will the refurb take?
- How long will it take you to find a buyer?
- How long will it take them to be able to complete i.e. get a mortgage?
Then add some extra contingency time for unexpected challenges - like delays in work completion, additional work needing to be done, buyers in a chain, etc.
Bridgers don’t like extending the term, because they expect you to get the above right. They generally will extend, but not on the original terms i.e. they penalise you for going over term. So overestimate when you set the term at the outset. For most deals six months is cutting it fine when you factor in the above four elements.
If you find this useful and need more help contact us on [email protected]
- Contact Kevin Wright over on his Facebook page.
- Browse the Recycle Your Cash online training library by clicking here.
- Attend an upcoming 1-Day Property Finance Masterclass event - Book in here.
