Funding your property purchases
This is the perennial dilemma when you don’t have a big nest egg to use, how do you fund your deals? What do you do when a juicy deal comes along and you just can’t find the deposit?
Usually, when you find a deal that needs doing quickly, you don’t have someone with private money that is ready to invest right now. Conversely, when you have built up the trust over multiple coffees, you don’t have a deal ready for them to invest in. When you do find a deal and go back to them to ask for their money now that you have a deal, often they have invested it elsewhere because they didn’t want to wait and something else came along.
Unless you are borrowing the money on a fixed interest basis, you have the additional burden of abiding by the FCA directive PS13/3 requiring you to get proof that you are dealing with a Sophisticated Investor before you are permitted to reveal the specific details of your equity investment deal. This is a prerequisite for any investor offering a share of the profits (or losses) in return for a cash investment in their deal.
There is a far simpler way to fund your purchases – use bridging finance. You may think that will be more expensive but there are some pretty greedy private individuals out there who want 50% of any profit you make as the price for their money in your deal. With the more reasonable individuals, yes, you may well pay a bit higher interest rate, but there are a ton of advantages:
- Your loan application is approved quickly, usually in a day or two
- Your purchase is completed quickly, usually in under 28 days
- You don’t have to buy a bridger coffee, or dinner, or any other inducement
- It is a loan, so no FCA financial promotion complications
- They have deep enough pockets that, if you find another corker of a deal before you have finished the current one, they will fund that too
- If one bridger happens not to like your deal, there are always other readily available bridgers who will like it.
It’s all nice and simple with the right bridger.
With a private investor you have lots of disadvantages:
- You probably got married quicker than it can take to convince a JV partner to invest in your deal!
- You’ll need to spend a lot of time nurturing them to get their money in your deal
- They often get cold feet and pull out just before, or even worse just after, you exchange contracts
- They often want 50% of your profits
- They may want to poke their nose into how you are managing your project and want a say in what colour paint you are using, for example
- They can get stroppy about what you are doing with their money and want to pull out before the project is finished
- They may suddenly need the money they put into your deal for something else
- They probably want a say in which exit strategy you prefer to use
It’s a no brainer, funding that juicy deal is simpler, quicker and less hassle with bridging finance.
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