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Should I lock my money up or borrow to buy my next property?

bridging finance Sep 19, 2016

THE QUESTION

I have seen a great property I want to buy but I cannot decide if I should buy it for cash then refinance it once it is refurbed, or borrow to purchase it. I have the cash to buy outright, but I am worried that, by tying up all my cash in a property I will not be able to buy another property during the period I am waiting to remortgage it, if I found a really good one.

THE ANSWER

If you can fund a deal with cash, you should; that way you have zero borrowing costs.

Investors are often reluctant to do this on the basis that tying up their cash in one deal takes them out of the game if and when other juicy deals come along whilst they are waiting to remortgage to release their cash.

This is impaired thinking. I teach that, whilst you are in that limbo period, you can buy your next deal without any hard cash at all -- by intelligently using bridging finance, like this

  1. A bridger will lend 70% on the next property (let's call it B) you want to buy
  2. They will also lend up to 70% against property A that you just paid cash for
  3. You can borrow 100% of property B's purchase price, plus refurb costs if needed by putting up both A and B as security
  4. When your remortgage on property A comes through, that pays off the bridging loan
  5. Property A is now mortgaged whilst property B is now unencumbered and waiting to be remortgaged

If you then see another corker of a deal you repeat the cycle; just go back to 1. to buy property C.

You can learn more here:

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