Bridging Finance vs. Private Investor Funding
What finance option do you prefer?
Bridging Finance
Bridging finance serves as a short-term financial solution, acting as a bridge (hence the name) between the purchase of a new property and the sale/refinance once the value has increased.
Pros:
Speedy Process: Bridging finance is the speedboat of property financing. It offers rapid access to funds, making it ideal for seizing time-sensitive opportunities.
Versatility: It provides flexibility in usage – whether for refurbishments, quick acquisitions, or bridging gaps in property transactions.
Short-Term Commitment: Typically, the repayment period is short, often within a year, allowing for a swift exit strategy.
Cons:
Cost Factor: The speed comes at a cost – bridging finance often carries higher interest rates compared to traditional mortgages.
Prompt Repayment: With a short repayment window, financial planning and exit strategies are crucial to avoid potential pitfalls.
Delays: In some of our experience, the bridge has taken way longer than we would have hoped, in these cases, you’re paying a premium without the advantage of speed.
Information overload: The amount of paperwork that is required is ridiculous, it feels like it would be easier to donate a kidney. The process could be more streamlined if solicitors worked together and shared information.
Private Investor Funding
Private investor funding involves sourcing financial support directly from individuals or groups rather than traditional lending institutions.
Pros:
Flexible Terms: Private investment allows for direct negotiation of terms with investors, fostering flexibility tailored to the needs of both parties.
Increased Capital: Access to a pool of investors means a potentially higher capital injection, opening avenues for more extensive property ventures.
Relationship Building: Beyond finances, private investment offers the opportunity to build strong, lasting relationships with backers.
Giving back to everyday people: Why should the banks earn all the interest, if you have money to invest, then we would much prefer to help your money work for you rather than the big man.
Cons:
Risk to Relationships: In case of unforeseen challenges, the risk extends beyond finances to potential strains on personal or professional relationships, however, this is always discussed beforehand and solutions are included in the loan agreements created.
Transparency Requirements: Investors may demand detailed information throughout the process, requiring a transparent and open communication approach, which is doable but must be managed by the developer so that the priority is the success of the business, then everyone wins!