Welcome to this week’s instalment of the property-packed newsletter. We have the latest news, hottest topics and actionable steps you should be taking as a property investor.
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Latest update from me
Happy Friday everyone. It’s been a bit of a strange week for me with the driving back from Kent and being given a touch of the Norovirus from my beloved family. Details we won’t go into.
One thing I have been looking into is the cost of bridging finance for Flips and BRR investments. The costs you pay for lending can have a big impact on the profits that you are left with, sometimes deciding if it’s a deal or not.
In an ideal world you would have all the cash you require to complete a project which saves you lending fees. That said, with surplus cash you would probably still want to use lending to leverage what you can do.
Using leverage allows you to do so much more as you are not using all your capital in one go. This is all dependent on your personal risk profile so it’s not for everyone.
For me, I have a slightly higher risk tolerance and would want to safely leverage so I can move forwards with more projects.
A few things to keep in mind…
- Always shop around with different providers, aim to get a minimum of three quotes on the same deal sheet
- Ask for recommendations and find out what experience other investors had when dealing with lenders and brokers
- Going direct to a lender and cutting out the middle man. Some specialist lenders will conduct the brokerage service as part of the fee
- Other fees and terms that are usually wrapped into a product that you need to explore and be aware of:
- Lender setup fee
- Broker fee
- Lenders legal fees
- Early repayment fees
- Late fees
- Valuation fees
- Once a product is in place you will then need to service the loan with monthly interest payments until you exit. These can be structured differently depending on the lender. But here are some things to keep in mind:
- Just under 1% monthly interest payment is considered a broad average
- Interest can be paid monthly
- Interest can be calculated for 12 months and deducted from the initial loan (what you don’t use is reimbursed) this is called retained interest
- Interest can be wrapped up and paid on completion, this is called rolling up
If you are looking at using bridging or development finance for your projects, make sure you seek financial advice from an accredited professional.
Fun fact about me.
Nothing fun to report this week apart from working this weekend to now catchup on lost time this week.
Note to self… don’t socialise with anyone who has had Norovirus in the last week or two.
Anyone fancy a beer this weekend?