Different ways of financing a property investment

When buying property as an investment there are several ways of buying property. Each method can have their pros and cons. In addition, you may not be eligible to use all the methods and so must find a way to finance an investment.

Cash

 

Pros

• Often as a cash buyer you will be in a better position to negotiate a good deal for yourself. This is simply since the buyer knows it will be a quick process compared to mortgage

Cons

• You will need a lot of money to buy a property meaning you are putting a lot more on the line and taking all the risk in comparison to a mortgage where it isn’t your money.

 

• You won’t be able to leverage your money, quite often meaning you can only buy 1 property rather than multiple possibly resulting in a lower ROI.

 

Borrowed Cash

 

Pros

• Often as a cash buyer you will be in a better position to negotiate a good deal for yourself. This is simply since the buyer knows it will be a quick process compared to mortgage.

 

• Borrowing cash from someone normally helps you share the risk. If you are borrowing cash from someone, they may likely have a lot of spare cash if needed for future investments

Cons

• The person who you borrow the cash from will have a charge or security on the property. Meaning worst case scenario, they can take the asset from you.

 

• You will be in someone’s debt and responsible for their money. If it is a close friend or family it could cause tensions if things don’t go to plan.

 

• They will need to pass AML checks (Anti-Money-Laundering)

 

Bridging loan

 

Pros

• A quick way of accessing money if you do not have the cash yourself

 

• Allows you to act as a cash buyer meaning you can negotiate better cash deals when buying.

 

• A lot of options on different bridge loans that allow you to make a bridge loan contract work for you and your investment plans

 

• Easy to get approved one of these loans

 

Cons

• You will often have to pay these back quickly, often 6-12months. This means if you are refurbing and refinancing a property, everything must be done in this time frame.

 

• Charges and fees can escalate if you do not pay these back on time

 

• The interest will be far higher than a mortgage rate

 

Bank facility / loan

 

Pros

• You can leverage your cash on more properties as you will only need to put down so much capital per property.

 

• Long term to pay back compared to bridging loan

Cons

• These can take a long time to be approved. Although they advertise 8-12 week approval it can easily be closer to 24 weeks form our experience. As a company we have not successfully seen an 8 week approval.