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  • Mortgages & Finance

    Bucket Finance

    At least I think that's what it's called.

    I'm near enough where I want to be at BTL wise, and now want to concentrate fully on BTS. Have done and sold a few with good success so far.

    Are there any lenders with an appetite to lend on a commerical basis. I generally purchase run down houses from estate agents but will also be using auctions.

    I want an agreed facility of around 400k at say 60/40 with the lender giving me access to 240k and me putting the rest. I would then purchase and refurb properties up to the 400k limit with the lender having first charge on all.

    Does such finance exist ? If so, who is lending and at what sort of rates.

    Thanks for any help.
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    Paul,

    The general model works and there is financing. Those who deal in such things can reply with details. The precise numbers might be a bit more conservative but the modal can be made to work.
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    John Corey 


    I host the London Real Estate Meet on the 2nd Tuesday of every month since 2005. If you have never been before, email me for the 'new visitor' link.

    PropertyFortress.com/Events

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    it does exist Paul and it is called bridging finance and there are potentially dozens of such lenders with funds to lend. Hardly any of them could be described as household names but they do not suffer from the lending phobia that you read about with the major banks; they have coffers of cash and they are keen to lend it.

    Your 60/40 split will work with most bridging lenders.

    They do not base lending decisions on your income, or particularly your credit rating (unless you are/have been bankrupt) but the property asset you are purchasing.

    They work far quicker than the mortgage lenders you will have experienced and can certainly process a loan with auction purchase timescales.

    Most are geographically biased, so the location of your purchase may well be a key factor in which ones will or wont lend.

    A typical monthly rate has traditionally been 1.5% but, depending on location, keener rates may be achievable down to 1.25% or even a bit lower. There are headline grabbing rates as low as .075% but actually coming up with a property that meets the strict criteria to get such a rate is beyond most borrowers.

    Most bridgers will deduct the monthly and set up fees from the loan advance, so you receive a net amount with no monthly payments to make.

    If you operating a BTS model a six month term is advisable to allow for refurb and time to complete your sale.

    Almost all bridgers charge a set up fee, typically 2%. Some also charge an exit fee. You will have to pay survey fees as normal and you will also be expected to pay the lenders legal fees.

    If you are unfamiliar with the bridging market you will benefit from using a specialist broker who is active in this market as they will know which lenders will suit the deals you are looking at and save you masses of wasted time searching from scratch.

    They key to your success with this strategy will be your ability to
    1. source houses that will sell easily at the right price
    2. not overpay at purchase
    3. refurb to a high standard within a tight timescale
    4. accurately factor in your finance costs

    If you are confident in your ability to do all this, then you should have no fear of using bridging to finance you through each project.

    Once you understand how bridging works and are comfortable with it, there are more advanced bridging strategies such as delayed completion bridging where you....
    ....negotiate key access on exchange
    ....complete your refurb between exchange and completion
    ....borrow based on the post refurb value, not the purchase price
    ....put your refurbed property back on the market on the day you can complete

    Successfully using this strategy means that you can do it with a lot less than 40% of your own cash and reduce the cost of bridging as you have no borrowing costs during your refurb period. This will not work with auction or repo purchases but works fine with most others.

    I already help a number of people who already are successfully doing what you propose and I would be happy to guide you in your selection, should you wish me to.


    Kevin Wright
    07889 526979
    kevinwright@thinkpositive.co.uk
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    Kevin Wright
    07889 526979
    kevinwright@thinkpositively.co.uk
    Paul,
    we have a similar facility to what you discuss where we agree funding every quarter and draw down as required, we do this so we can use cash funds first, If they are tied upo, we can fall back on this facility and we dont have to stop buying. Funds can only be drawn down onvce though, hence why we re-apply every 3 or 6mths. What you want, used to be available, but isnt anymore, I knew it as 'pot finance' or 'revolving credit' but i am sure there are loads of names.

    If the principle of what i describe Is of interest I can let you have a contact with pleasure.

    Phil Stewardson.
    Stewardson Developments Ltd.
    https://www.stewardson.co.uk
    Follow me on twitter - @philstewardson
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    Phil Stewardson.

    Stewardson Properties.

    Stewardson Developments Ltd.

    Burson Land Ltd. & Jennings & Gilchreaste Ltd.

    http://www.stewardson.co.uk

    Follow me on twitter - @philstewardson

    Thanks for the replies guys and sorry for taking so long to reply, I've had a particularly bad trojan nightmare that I've only just got rid of.

    Bridging is not really what I'm after Kevin. Used it many times, but too expensive. I want an agreed pot of funds at X% over BOE I can draw down on once agreed without having to bridge each and every time. It would be more cost effective in this case to use standard BTL mortgages.

    As Phil as intimated, bucket/pot/revolving finance used to be widely available and is more what I'm after.

    Phil, I would greatly appreciate some details and a contact on your facility as it seems closer to what I'm looking for. Many many thanks in advance.
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    Paul - unfortunately 'facilities' like you are seeking are hard to find simply because the lenders want to pick and choose what they will or won't support and with many of the commercial ones limiting their support to 5 yr lending (under the guise of capital adequacy requirements), you could find that they just don't want to earmark funds specifically to you on the off chance you take them up.

    In the mid 90's we did a lot of these and even then the lenders were wary often building in a fee to cover non-utilisation if you didn't take what was on offer.

    They would always argue now that in the era of 'responsible lending' they should be looking at every case on its merits and not put out blanket solutions.
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