Everything has its purpose and so does property bridging finance. This financing method has gained quite a lot of prominence over the years with the real estate industry describing it as a very powerful tool for buyers and investors. It has, in a way, changed the landscape forever and gave acquisitions a new perspective. But when it is best utilized?
#1: Pre-purchase Needs and Acquisition Requirements
Property bridging finance can be used in many ways and perhaps its most popular application happens in the initial stages of a real estate acquisition. Most people would make the mistake of assuming that they only have to worry about the price of the asset as it’s listed on a selling advertisement. Let’s take note that there’s more to every property’s price tag than just its list price.
There are a number of initial or pre-purchase expenses that need to be fulfilled before the transaction is set to roll. For example, one will have to spend some resources in looking for the right assets and coming up with a shortlist of the best ones. Hiring professionals such as lawyers for legal requirements and surveyors for asset examinations will cost some too. Moreover, sellers will require a down payment before anything else and if one needs to buy more time to come up with the cash for that, a security deposit will be made to prevent others from stealing the opportunity right from under one’s nose.
But hey, we’re just getting started. We’ve got two more applications on this list.
#2: Foreclosure Fix
Missing out on installment payments for one’s house, land, building or any other real estate asset will garner a foreclosure. Depending on the agreement signed into by the buyer and seller, a certain number of failed payments will end up in a foreclosed property and nobody wants that. In cases where this is imminent and one has to come up with immediate resources to prevent it, a bridging loan becomes a very powerful and effective tool.
#3: Refurbishing and Renovation Needs
Bridging loans are also fairly used by people in their renovation projects especially when the refurbishing and updates done are in line with a planned sale or lease. Because no buyer or tenant will want a dilapidated or sad looking investment, owners need to raise the bar high and one way to do so is by renovations and upgrades and we all know these projects can rake up serious cash. http://www.alternativebridging.co.uk/development/
Bridging loans are described as a stop gap measure that prevents opportunity losses by providing a temporary loan for short term liquidity needs pending the arrangement and arrival of a permanent and bigger source of finance.
Confused? Allow us to explain how it works by virtue of an example. Let’s say that Rob and Anna are planning to buy a new house for their growing family. They both have savings but it’s not enough so they decide to fund the acquisition either by selling their current house or getting a mortgage. The trouble with either option is that they take time. The former takes time to wait for a buyer. No one’s really sure as to when the asset gets sold. As for the latter, processing it or any similar credit arrangement will be meticulous and time consuming.
Of course, Rob and Anna still push through. Besides, it’s a given fact for both options. Now the problem arises when the house they wish to buy gets a lot of attention from other interested parties. If they don’t provide for the down payment or at least a security deposit, they will lose their chance. To avoid that they’d take a bridging loan.
Because it’s faster to process and cash is released almost immediately unlike other financing options, it serves as the perfect method for short term liquidity needs as mentioned. Moreover, payment comes in two forms which makes it all the more flexible. How? Let’s check the two kinds of bridging loans as follows.
The Open Bridge
You see, bridging loans providers allow borrowers to choose their mode of payment. Users may opt to close it before it matures or as it matures. With an open bridge arrangement, the maturity date is not stipulated but is rather and often dependent on the time by which one’s main fund source (e.g. sales proceeds, mortgage, bank loan) becomes available.
The Closed Bridge
A closed bridge on the other hand stipulates a date which can and may also be the time by which one’s permanent financing becomes available. This is often agreed by both parties at the onset and is stipulated in the terms and conditions of the contract.
As to which of the two types of bridging loans should be preferred ultimately depends on users. At the end of the day, we have varying needs and circumstances so it’s a must to choose an option that complements you best.
In the event that an immediate need comes rearing its head, we’re lucky to have something called bridging finance. But what is it and what benefits does it bring? If you’re new to it, we urge you to read on. This financing medium beloved by the real estate world might just be the lifesaver you’ve been looking for.
A term given to a stop gap measure known for bridging the fund gap brought about by timing obstacles, bridging finance is a short term loan taken out to provide for the immediate short term liquidity needs for asset acquisition transactions. Its popularity and widespread use is due to its number of benefits and below are some of them.
Since time is of the essence in the world of real estate, one has to be fast otherwise someone else might grab the chance before you even get close to it. Since sellers will always require down payment and/or security deposits to be made, this can be challenging for those that have their funds pending. With this financing method, we can eliminate the opportunity losses.
Unlike other types of credit, the use of a bridge provides quite the flexibility. This is because borrowers have two repayment options to choose from and they can favor whichever one suits their needs and capabilities best. As the first option, one may choose to close the loan prior to its maturity or as early as one deems fit and is capable of doing so. The second is where one may opt to repay upon maturity which is oftentimes the day when one’s permanent financing is made available.
Designed to fulfill short term liquidity needs, bridging loans are temporary which makes them less burdensome as compared to other credit options in the market.
Some people choose to finance their acquisitions through credit such as in the form of a mortgage or a bank loan. Others on the other hand opt to sell the current asset they’re using and use those funds to buy a new one that suits their current needs. When that happens, they’ll have to evacuate the current space while waiting for a buyer thus the need to temporarily rent. This creates added cost. By using a bridging finance, buying the new place becomes possible even if the current one is still waiting for a buyer thereby cutting the need to spend on rent.