Not so long ago there were herds of almost “zombie” like property investors, buying new build properties on the inside track style scenario believing that a property could be sourced at 15% – 20% “ BMV”.
Come on get real! Do these vendors also stand on the street giving away fivers?
So is there a future for below market value properties? The answer is a resounding, yes.
In these credit crunch times, there are lots of “distressed “sales coming onto the market, some due to the panic caused by the media. For instance, would it be better to sell up now 10% under value, lock in you’re your gains now, and, if you believe what you are told, wait a year or so and buy at rock bottom? I don’t know, but you get the idea.
Problems come with financing these. The lenders that have caught a cold won’t mention any names here, specialising in financing, so called “under value” new build flats, are either closed to new business or won’t look at any under value element as a deposit contribution.
Solution: Bridging finance.
A bridging loan can provide 100% of the purchase price, providing that this is not more than 85% of the open market value (OMV), if there is a simultaneous, same day residential re-mortgage in place. This gets around the residential lenders rules and fears surrounding under value purchase.
An example would be the purchase of a repossession property say 15% under value. The high street route, would work on the purchase price, and not the value and this would be classed as 100% lending. At present, these loans are not available.
Using one of the above examples, you would complete at 100% on the purchase price and simultaneously complete a re-mortgage at 85% of the open market value.
Bridging finance isn’t cheap; but the gain, in certain circumstances far out weigh the cost.