How bridging loans can help to purchase buy-to-let homes

Tuesday, 20 September 2011 05:40

Use a bridging loan to buy homes to rent

Use a bridging loan to buy homes to rent

Renting out properties that you own to other people can provide you with a significant source of income. But whether you're looking to acquire your first buy-to-let home or have been in the market for some time and are keen to expand your portfolio, a bridging loan can be a useful product to realise your ambitions.

Although many of those taking out bridging loans for the purposes of buying property do so with the intention of living in such homes, they are also a popular option among residential landlords and developers.

The economic crisis of recent years has meant many would-be first-time buyers have struggled to raise the initial deposit required to get on the housing ladder and instead have had to continue to rent where they once may have purchased a property. However, this has created opportunities for investors looking to make their mark on the buy-to-let sector.

As bridging loans are only available to those who have already purchased a home, they are open to real estate owners in order to acquire additional developments to let out quickly and easily. By borrowing against the value of your existing property, applying for a bridging loan can provide a great way to purchase homes to rent out.

Of course, the money you receive upon taking out a bridging loan can be put to much more use than just the acquisition of the property itself.

Depending on how much you take out, you can also use the funds to pay for structural work to your building. This could be particularly useful if you are looking to convert a large development – perhaps a former pub or warehouse – into flats to rent out on an individual basis.

This money can not only be used to pay for materials, but also to hire builders and other tradesmen to ensure this work is carried out to a high standard. By converting a single property into multiple homes, you should have several streams of rental payments coming in, so such a loan could help to deliver a quick return on your investment.

It may also be an idea to update the fixtures and fittings of the property – or properties – that you wish to let out, as well as ensure that it is nicely decorated. Doing so is not only likely to make your rental investment much more desirable among would-be tenants, but may also mean that you can command a high level of rent.

Of course, carrying out such improvements will cost money and while it is likely that you will eventually realise a return on your initial outlay, it is a good idea to take such expenses into account as soon as possible to help you keep on top of your finances.

The use of a bridging loan calculator can be a useful way of doing this and such a tool will enable you to get a rough idea about how much your monthly repayments will be depending on the size of loan you take out and the interest you pay.

If you are hoping to take advantage of the burgeoning buy-to-let market, whether it is for the first time or you have some experience in the sector, you are likely to find that a bridging loan could be just the financial tool you need in order to achieve this.



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Finance articles

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    Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.

  • Important questions to ask bridging loan companies

    Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.

  • Why bridging loans are only suitable for short-term funding

    You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.

  • Banks vs. specialist lenders – which bridging loans are best?

    Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.

  • Can bridging loans work for those who only need small amounts?

    Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.

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