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arjunb

Financing a BRR deal

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hi everyone!

I understand how BRR deals work, but I wasn't too sure how the financing behind them works. Is it true that the only way to purchase a property & then refinance it after a few months (between 1 & 12) is bridging finance? I understand that if someone were to use a traditional BTL mortgage, they will have to pay the early repayment charge which will almost certainly be more expensive than bridging finance.

I guess my question is - are there any other 'traditional' ways?

Thank you!

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The traditional ways are to purchase cash or with short-term lending (bridging).

You outline its not feasible to do it in a Buy-to-Let Mortgage (due to ERC when refinancing) and that is true for most mortgages. Though the reason Property Investors dont do it and stick with the BTL. Is that refurbishment of property on a Buy-to-Let Mortgage is prohibited. The whole affordability is based on rent coming in to fund the mortgage payments. Not only that but renovation can effect the security and be viewed as high risk.

The way Buy, Renovate, Rent, Refinance, and Repeat (BRRRR) is done is in two stages acquisition and refinance, not forgetting having cash aside for the renovation. The acquisition is usually with Bridging Finance or Cash.

The refinance is on a Term Mortgage, typically with a lender that allows refinance within six months and takes a view on the new value. Many lenders will not move from the purchase price, others will do purchase price + renovation costs and others will do a new valuation.

In 2020 - we also have some bridge-to-let products. Whereas before you would typically use two different lenders (for acquisition then refinance). Now we have lenders that offer both, in one package. This is useful as it saves some costs, (almost) guarantees an exit and gives you an idea of the final exit valuation.


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Please don't take my messages on Property Hub as Personal Financial Advice, just a rambling guy passing time on a Coffee Break.
 

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