How to Use Short Term Finance to Grow Your Property Portfolio

November 9, 2021
How to Use Short Term Finance to Grow Your Property Portfolio

Property remains one of the best investments globally, and the United Kingdom remains an excellent nation for long-term real estate investment. Property forecasts suggest the UK could see house prices rise by 21.5%  by 2025, and when you mix the low-interest rates with the incredible demand — it’s not hard to see why!

However, investing in property is not always plain sailing, especially when you need short term property finance to get a deal over the line. Many investors lose excellent investments because they could not acquire property finance quickly enough. 

But that is where short term finance comes into play. It can cut costs, save deals, and give you incredible leverage to fast-track the growth of your property portfolio and business. 

Here’s how you can use short term finance to build your real estate portfolio…

Bridging Loans

A bridging loan is a common way to obtain short-term finance. These loans are fantastic if you are looking to get a buy-to-let mortgage, but you need to take fast action. The following situations are times when you could consider a bridging loan:

  • Essential property improvements - Many of the best property investments require extra work, which is fine. That said, you sometimes may not have the capital to begin the property improvements. But that is where a bridging loan can help you! Moreover, lenders often assess some properties as unsuitable for mortgages. Perhaps the property does not have a kitchen or a bathroom? That is where bridging finance will help you to develop the house before obtaining a mortgage. 
  • Maintaining a place in a sale chain - When you are funding the purchase of a property with the proceeds of the sale of another property, but you can not complete the sale at the same time as the purchase — you may need short-term finance to bridge the gap. Once you have completed the sale of the property, you can end the bridging loan and use the proceeds of the sale to repay the bridge. Again, bridging finance is an excellent short term finance option to prevent you from missing out on a great deal. 
  • Auctions and distressed sales - You can find absolute gems at auctions because people are, for whatever reason, motivated and desperate to sell their property often at a vast discount from the market value. If you cannot manage to acquire a mortgage over the line, you could always use bridging finance so that you do not miss the investment. 
  • A lease extension - Suppose you spot an apartment with excellent renting potential? You may also find a price discount because the leasehold expiry date is approaching or falls below the 70 year mark of which most conventional low cost lenders require. That is not a problem as you can use a bridging loan to cover the cost of the purchase price and the leasehold extension. That way, you don’t have to miss out on an excellent investment opportunity thanks to short term finance. 
The criteria for obtaining a bridging loan 

Every lender has different criteria for bridging loans. But, nonetheless, almost all lenders require an exit strategy and a form of an asset as collateral. You can often use a property for collateral when applying for a bridging loan and short term finance.

The key features of a bridging loan 
  • You can obtain loans from £100,000 to £30 million 
  • You can get rates from as low as 0.44% per month 
  • You don’t need to show income proof 
  • Adverse credit may be accepted 
  • It’s a very fast and efficient service 
  • You can obtain 100 per cent funding

> You can find out more about bridging loans here. 

VAT Loans 

If you are a property developer looking to grow your portfolio, and you are looking to purchase commercial real estate — you will still need to pay tax upfront despite many commercial properties being exempt from VAT. That is highly frustrating for many developers because placing an additional 20% into a purchase for 2-3 months restricts a developer’s ability to take on new projects in the meantime and grow their portfolio. 

VAT is often payable on new commercial property sold as freeholds, and you will need a VAT loan if you suddenly discover an unwanted 20% as you are about to complete the deal. These loans are ideal for investors looking to expand their portfolios quickly with short term finance. 

The key features of VAT loans 
  • VAT loans can significantly improve your cash flow 
  • VAT loans offer a quick payment directly to HMRC 
  • You can get approval within 24 hours 
  • You can get loans from £50,000 to £5,000,000
  • It’s quick and easy to arrange 

> You can find out more about VAT loans here. 

Exit Finance 

One of the most important things for property investors is flexibility, and exit finance allows property investors to pay off any outstanding loans on a nearly or recently completed property. For example, if the existing finance is near the end of its term but you have not completed the sale, you will have more time to finalise the sales period. That also takes pressure away from you because you don’t have to look for quick sales. Instead, you will retain more control over your development and ensure you get the best price for each unit. 

Moreover, you can reduce the rates you pay for the development loan with exit finance, which saves you a lot of money. That’s very important during a slow period where sales are not strong. Exit finance also allows you to scale your property portfolio faster because you can release the capital from a completed development project into a new project even if the development is not yet complete. 

The key features of exit finance 
  • Lending is available across the United Kingdom 
  • First-time developers can acquire exit finance 
  • Borrowers with adverse credit ratings can apply for exit finance
  • Rates from 0.48 percent - 0.55 percent at 70 percent LTV
  • Terms are available for up to 36 months 

> You can find out more about exit finance here. 

Final Thoughts 

Building a successful property investment portfolio takes time, patience, guidance, and diligence, however, you can fast-track the growth of your property portfolio by leveraging short term finance options. 

The Merryoaks team has over 40 years of experience helping property investors obtain the best property finance solutions.

To find out more, schedule a strategy call with one of our Property Funding Specialists.

   Speak to a Funding Specialist

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