Call it Murphy’s Law, but good property deals often seem to come around at the least opportune moments when access to ready cash is restricted. Most investors remember well those times when they lost out on the ‘deal of a lifetime’ and unfortunately, it’s something that often leaves a bitter aftertaste.
Having the right sum of cash at the right time is key to any investor’s success. However, unlike the Richard Bransons of the world, there will be times when traditional methods of raising funds will be blocked and a different avenue will have to be pursued. This is particularly relevant when buying a property on auction.
The terms and conditions when buying a property on auction differ significantly from traditional property sales. It’s customary for auctioneers to demand at least 10 percent of the purchase price, as well as the auctioneer’s commission, at the fall of the hammer. Thereafter the usual terms are payment of the balance and all associated costs within 30 days.
In other words, you need to be able to lay your hands on cash – and quickly. Traditional sources of finance may well cost you the deal because of administrative hold ups and delays. This is where a bridging finance product such as that offered by Prevance Capital comes in to play.
“Those who are interested in buying homes on auction can set up a facility with Prevance Capital ahead of time,” says Christo Jonker, marketing manager of the group. “Like any regulated financial institution, we require some form of security for the funding, and this can take the form of a first mortgage on an existing property.
“Once this has been accomplished, the operator has the fire power to bid for a property at an auction, secure in the knowledge that they have the financial backing in place if theirs is the winning bid. This would give an investor a possible advantage over his competition in the bidding process.”
Jonker says that once the deal has been finalised, Prevance will then fund the deposit, the balance of the purchase price and other costs involved and will give the operator around six months to dispose of the property and repay the finance to Prevance.
Obviously interest will have to be paid on the credit facility, but this pales into insignificance when compared to the potential profits to be made on some auction properties.
Serial investors seldom work with one property at a time. These entrepreneurs are fully aware of how necessary it is to invest in multiple properties simultaneously in order to maximise profit. Even for those who have access to equity, gearing this with bridging finance will ensure much higher percentage returns on their investment.
The extended funding period of up to six months facilitates renovating and selling a property without undue pressure. Reselling an investment property for a market-related price via the traditional estate agent route takes time. This is exactly what bridging finance allows entrepreneurs to do – take the time to market their investment correctly in order to achieve the best selling price possible.