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Investors who have a strong portfolio and plenty of opportunities will benefit from access to finance options.
A Guide to Property Investment Finance
Why Borrow?
There are many different reasons why someone might consider borrowing money:
- Purchasing property at auction: Expanding a property portfolio by purchasing new buildings at auction opens up opportunities for expansion or renting.
- Renovating, refurbishing or restructuring existing property: Changing the external or internal layout of a property to meet a new need is key. These costs can stack up for bigger projects or altering multiple properties.
- Releasing equity on existing property: Being able to access some of the equity for a property which has increased in value could lead to new investment opportunities.
- Expanding your portfolio: Wealth managers suggest your portfolio should grow and develop over time to continue to generate the maximum profits. Being able to buy up new assets will strengthen your portfolio.
- Exiting from a current deal: If you need to break your current contract to secure a profitable deal elsewhere, you may need to secure funding to pay exit fees.
What Options Exist?
Property investors have access to a range of different finance options available to them. Let’s look at each one.
Commercial Mortgages
Commercial mortgages are used to buy property strictly for business purposes, like offices and warehouses. These types of mortgages will work like traditional residential mortgages but will be paid back over an average period of 25 years.
You will be subject to different lending criteria and rates depending on the lender you work with. It is wise to compare offerings to see what is on offer.
Auction Finance
Auction finance is a good tool for investors who want to get access to properties at an accelerated rate. They will buy at auction and typically pay below the market rate. A lender will agree to release a specific amount of money prior to a purchase being made, and the rest will get released once the property is purchased.
Bridging Loans
If you need to secure money to work through the transition between the sale of a property and the purchase of another, then you will need to secure a bridging loan. This is an amount specifically given for surviving a transition, and you will usually be expected to pay it back when you get access to money again.
Development Finance
Development finance loans are made for big projects. When you’re trying to buy up land to build properties or trying to secure multiple properties, a development finance loan is best because it won’t drain all your assets or funding. This loan can be secured against assets or is given based on projected income from the finished project.
Different Rules For Investment Finance
Investment finance is a complex area to navigate, and as a result, the rules are different for making an investment and securing a loan.
The criteria for getting a loan will be different from one provider to the next. It is worth noting that some providers will have different ‘stress tests’ to see how applicants will respond to different situations and how it will affect their income.
You will be expected to evidence different things depending on what type of finance option you choose.
This can be some of the following things:
- A projected income for your business for the next 5 years.
- Financial documents like tax returns, bookkeeping records, and cash flow projections.
- A business plan outlining the project you intend to undertake with the loan.
- Proof of successful business operations based on past activity.
- Financial information for owners and key figures in the company, including individual credit scores or outstanding debts.
- Evidence of ability to make loan repayments.
Securing Property Investment Finance
Getting property investment finance will require a business or group to speak with a lender and complete the processes involved in assessing loan eligibility and rates. It is sensible to make enquiries to multiple lenders to get an idea of where the best terms will be.
A big factor for any loan is the risk involved, so those with a poor history of investments or anyone with a bad credit score may struggle to get favourable terms on finance options.