Getting into the buy-to-let property club can be difficult for novices particularly if they don’t have much money to fund the enormous costs traditionally required to gain entry. These costs include substantial deposits, stamp duty, legal fees, mortgage fees, and potentially furniture and fixture costs depending on how the property is going to be set up for renting out to tenants.
A lot has changed in the property investment market during the past decade and one of the biggest changes is the reduced requirement to fund all the entry costs with hard cash. Crafty investors have discovered ways to forgo the need for a substantial deposit and have even found back door entrances to the buy-to-let club that do not require punters to pay for the other costs as well. This may seem a ludicrous or even illegal idea to traditionalists but there are ways to gain entry to the property investment club without burning a hole in your wallet. These methods rely on securing a hefty discount on the property you wish to buy and some clever financing during its purchase.
In order to buy an investment property most individuals will require a buy-to-let mortgage to fund the majority of the purchase price. A typical product will fund about seventy to eighty percent of the value of the property. Traditionally the remainder of the purchase price will be funded by a cash deposit from the purchaser. However in today’s market the deposit can often be forgone in situations in which the purchaser secures a genuine discount off the true market value of the property.
The mortgage that will be secured against the property long term will not allow the buyer to simply forget about funding a deposit if they have secured a discount in its place. Buy-to-let mortgages will normally lend money based on the lower of the market value or the purchase price. This means it will fund around eighty percent of the discounted price meaning the buyer will still be required to fund a deposit. However if the property is funded via a different source at purchase a buy-to-let mortgage can be secured against the higher true market value of the property at a later date.
Bridging loans are typically used in this situation as they can be issued to borrowers based on the undiscounted value of the property, or its true market value. If a buyer managed to negotiate a twenty percent discount the bridging loan would provide the entire eighty percent required to secure the sale without the need for a cash deposit. A buy-to-let remortgage product can be organised at the same time and can effectively by used to redeem the bridging loan as soon as one day after the purchase of the property is completed.
The buy-to-let remortgage product will probably only be issued to around eighty percent of the market value of the property but as the property is already owned by the investor, and it is funded by a bridging loan to eighty percent of the market value of the property, the final result is that a normal buy-to-let mortgage will be secured against the property and no cash deposit was required in the purchasing process.