Unlocking the potential of below market value bridging loans
In the dynamic world of real estate investment, savvy investors are constantly on the lookout for opportunities to maximise their returns. One such opportunity lies in the acquisition of properties at below market value (BMV) and leveraging bridging loans to facilitate these purchases. But what exactly are Below Market Value bridging loans, and how can they benefit investors?
Understanding BMV bridging loans
BMV bridging loans are short-term financing solutions specifically designed for properties purchased below their open market value. These loans are particularly attractive to developers and investors who have negotiated a purchase price that is significantly lower than the property’s assessed market value.
The mechanics of BMV bridging loans
The key to BMV bridging loans lies in the lender’s approach to loan-to-value (LTV) calculations. Unlike traditional loans that are based on the purchase price, BMV bridging loans use the property’s higher open market valuation (OMV) for LTV calculations. For instance, if a property valued at £250,000 is being sold for £187,500, the lender will consider the £250,000 figure for determining the loan amount.
Advantages for investors
The primary advantage of BMV bridging loans is the potential for increased leverage. By borrowing against the OMV rather than the purchase price or offering additional security, investors can often secure more funding while investing less of their own capital. This can be particularly beneficial for implementing the Buy Refurbish Refinance Rent strategy or buying property at auction with auction finance and for investors looking to flip properties for a profit.
Repayment strategies
Investors typically have several options for repaying BMV bridging loans:
- Refinancing: Securing a long-term mortgage based on the property’s OMV after purchase.
- Sale: Selling the property at or above market value to repay the loan and realise a profit.
- Development: Enhancing the property’s value through refurbishments and then refinancing or selling.
Navigating the BMV landscape
While BMV opportunities can be lucrative, they require due diligence and expertise to navigate successfully. Investors should consider the following:
- Valuation accuracy: Ensuring the OMV is accurately assessed by a qualified surveyor.
- Exit strategy: Having a clear plan for repaying the loan to avoid costly interest rates associated with bridging finance.
Conclusion
BMV bridging loans offer a powerful tool for real estate investors looking to capitalise on market inefficiencies. With the right approach and a solid understanding of the intricacies involved, investors can unlock significant value and accelerate their investment goals.
Before you begin the application process
Consult with an expert broker: At Evolve Finance we understand how below market value bridging loans work and can guide you through the intricacies of the process, helping you explore all available options.
