Real Estate Investor Magazine South Africa Real Estate Investor Magazine - October 2017 | Page 62

FINANCE
Bridging Finance and Your
Investment
THE TERM LOAN
BY NICOLA FAURIE
T
he process of finding your ide-
al investment property can be
daunting enough. Add to that
the pressure of generating the neces-
sary capital for the purchase, and many
are left running for the hills. One solu-
tion many haven’t considered, is bridg-
ing finance. This allows you to access
funding as and when you need it, for
anything from purhcasing the property,
to renovating to sell.
A convenient option for those who
don’t qualify for a further mortgage
What’s the difference between a
bridging loan and a traditional loan
The main difference between the
two is accessibility. In exchange for
this, interest rates are higher, to make
up for the increased risk. This needs to
be weighed up against the necessity of
the loan, as well as the time you’ll need
to repay it.
The advantage of this type of loan is
the fact that you’re able to speed along
the purchasing process – of great im-
portance when looking to make a good
Bridging finance is useful in the pay-
ment of transfer fees, estate agent’s fees,
the purchase of a new property while
waiting for another to be sold, and the
renovation of a property in order to sell.
loan from a bank, a term loan from a
bridging finance company offers an
easy solution. What, exactly, is a term
loan?
Although somewhat more expen-
sive than a conventional mortgage loan
from a bank, bridging finance com-
panies offer this solution for people
who do not qualify, or cannot obtain
funding from banks, to grow their real
estate portfolio and consequently their
net worth.
60
deal in a competetive property market.
Bridiging finance can be approved and
paid out within 24 hours, offering an
instant solution to financing woes.
Bridging loans are typically short-
term (no more than a few months),
covering up to 80% of a residential
property’s value, 65% in the case of
commercial properties.
Nicola Faurie is the Relationship
Manager at Bridge Flow (Pty) Ltd.
OCTOBER 2017 SA Real Estate Investor Magazine
As opposed to regular briding
finance deals, dependent on
the sale of a property being
secured before a seller can
qualify for a loan, a term loan
offers more flexibility.
A term loan endures for a
slightly longer period, since
the sale of a property is not
yet secure – in fact, an OTP
may not even be signed yet
– but the intention to sell is
evident.
The qualifying requirement
is that an unbonded property
is owned by the investor over
which a bond can be regis-
tered to secure the facility or
loan required to purchase an-
other property in the interim,
whilst the sale of a different
property is pending.
The loan or facility is then
repaid once the sale of the
property, or properties, is
registered. This cycle can then
continue, if the investor so
desires.
If a separate unbonded prop-
erty is not available, the bridg-
ing finance company may
agree to register a bond over
the property to be purchased,
refurbished and then sold, as
security for the loan.