Buying, refurbishing, and then refinancing a real estate property is a common strategy employed by property developers. It allows you to turn great profits. However, this method also relies heavily on the ability to act quickly.
Unless you have a lot of funds available for buying and refurbishing properties, you need to explore additional options. While you could find investors, there is more to gain when you work on your own.
For many people in the property development business, the solution is to use bridging loans. These loans are typically used for short-term financing when you need funds to purchase one property before the sale of another is completed.
Here are five important reasons to consider using bridging loans for real estate development.
1. Convenient Short Term Financing Options
Quick financing is one of the main reasons to consider bridging loans for real estate development. You can quickly raise the capital that you need to complete your property purchase. This may be essential when you need to act quickly to secure a property.
When applying for a bridging loan, the funds are typically available quicker than with other loan options. You may even have the option of raising all the capital that you need through the bridging loan.
2. Purchase Any Type of Real Estate Property
You can also use bridging loans to purchase almost any type of real estate property. These loans are often used by real estate developers to buy and refurbish residential properties, commercial buildings, apartments, retail shops, and even land.
A secured bridging loan is secured against a property that you already own. If you own at least one property that does not have any finance secured against it, you may find it easier to obtain a bridging loan.
3. Complete Major Property Renovations
Renovating an uninhabitable house is often a major undertaking. Depending on the condition of the property, you may need to complete a lot of renovation work. Most lenders will not offer to finance these types of development projects, as they are considered a greater risk.
Short-term financing with a bridging loan provides an alternative. The bridging loan may help you cover the costs to complete the renovations and make the property habitable again, at which point you may refinance with a traditional loan.
4. Finance Your Development Project
When purchasing a property or land for property development, you may need funds throughout the development process. Depending on your financing, this means that you may need to wait until you obtain the financing to complete the development project. A bridging loan provides a way to avoid this problem.
As mentioned, bridging loans provide fast funds. These short-term loans are intended to offer quick financing solutions, with term lengths ranging from two weeks to three years.
5. Fund Property Auction Purchases
Purchasing a property through an auction requires you to act quickly. You need to have financing available as soon as you can to complete the transaction. In many cases, you only have 28 days after winning the auction to get your financing in order. With a bridging loan, you can easily meet this window.
These are just a few of the key reasons to consider using a bridging loan for property development. The bottom line is that these types of loans are suited for developers and investors that need to make quick real estate purchases with the intention of flipping the property or refinancing.