Week 36: How to Finance a Deal

It’s September, that beautiful season Autumn has arrived or better known as Fall to my American and international friends. Don't you just love this time of the year with all its shimmery orange and crispness in the air. Warming drinks such as Ginger Royals or Spiced Pumpkin Latte to tick us over. I have decided to reference a ‘flip’ in this week's blog as it is the 1st port of call for any investor starting out and part of the BRRR  strategy. Both areas are intertwined and it is hard to discuss one without referencing the other so apologies in advance if there is any repetition but I am hoping to cover different aspects which we didn’t include last week. In my previous blog I looked at BRRR as if you were a cash buyer. But let's face it, how many of us have large savings in our current account these days? But don't let this discourage you. If you've spent a little time in the industry then you no doubt have come across the term OPM (other people's money). This is how most investments are financed and there's multiple ways you can do this by partnering up with someone, better known as joint ventures, or doing an investment on the premise that you will start now and pay later, LOA, otherwise known as (lease option agreement).

I will try to explain this in its simplest form. Most banks will cringe at the thought of lending money for the purpose of funding property but don't despair there are specialist agencies that do this, ‘Bridging Finance’. The average person is petrified of this due to the high percentage of interest they demand and quite rightly so, they are lending without you needing to show an income/salary and even lend to those who don't have the best credit file. If you are one of those then you have a shot at it now as most high street lenders will tell you to get lost. Another factor to consider is that they give you 75% of the purchase price of the property together with the renovation costs so all you have to provide is the deposit from another investor. This way you kinda get everything from the one ‘shop’. Some of them even transfer you onto a decent BTL mortgage once the project is complete. They are made for the short-term in mind and therefore  expensive but worth it for the sheer speed and ease of it. Once you have selected your investment property you can make an application with them.

If on the other hand your property is not as distressed, you have the option of a regular BTL mortgage which you then refinance after the project is complete. I would suggest contacting as many brokers as possible who are independent as they are not permitted to favour a single provider over another. You could then apply for a ‘mortgage in principle’ (a kind of  certificate) and show this to the estate agents or vendor. This shows them proof of funds and that you are able to proceed with the sale. Due to covid19 there are a number of lenders who are willing to lend at 85% LTV so you will only need a 15% deposit or leave in 15% equity in the end when you refinance. This can be done immediately; you no longer have to wait 6 months. Do bear in mind it is great to secure at this rate but your monthly interest will be much higher and they are lending a higher amount, so weigh everything up.