All property developers and investors have their own unique short- and long-term strategies. Some target short-term gains by ‘flipping’ homes for profit, while others prefer the long-term surety of generous monthly rent yields.
In both instances, there are various funding solutions available to cover the costs of such investments. Knowing which of these products is right for you could hold the key to maximising your ROI, irrespective of your short- or long-term goals.
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Buy and Hold Investment Strategies
The ‘buy and hold’ approach to property investments involves purchasing residential or commercial units outright, before letting them out to generate rental income. With average monthly rents hovering at record highs across the UK, it can be a lucrative strategy for those who pick up the right properties in the right locations.
New and established investors alike have a broad range of options to choose from, when looking to fund these kinds of investments. The four most prominent examples of which are as follows:
- Buy-to-let mortgages
BTL mortgages are specialist home loans designed for this exact purpose. They are charged differently to standard residential mortgages and have different criteria that must be met to qualify.
- HMO mortgages
Where an investor intends to let out a property to several unrelated occupants, they need a specialist HMO mortgage. HMO mortgages work in a similar way to BTL mortgages, though are tailored to meet the needs of HMO landlords, and typically attach slightly higher overall borrowing costs.
- Second charge mortgages
Another popular option for purchasing BTL property is a second-charge mortgage. This is where an investor borrows against the equity they have tied up in a property they already own (such as their own home), used as security for the BTL loan or mortgage. This option is only viable if the borrower has enough equity in one or more properties to cover the costs of the BTL property purchase.
- Bridging finance
Similarly, a bridging loan can be secured against almost any type of property an investor already owns. Bridging finance differs from the above mortgage options in that it is a strictly short-term solution, designed to be repaid within a few months. A bridging loan can be transitioned to a longer-term loan or mortgage at the end of the initial term, enabling the investor to repay the outstanding balance gradually.
Buy and Sell Investment Strategies
The buy and sell approach to property investments enables investors to generate fast and often significant gains by ‘flipping’ homes short term. With demand for affordable properties at an all-time high, it is simply easier for developers to purchase, renovate, and sell on homes for major profits.
Popular funding solutions for these types of investment strategies include the following:
- Bridging finance
Bridging loans are particularly useful for flipping properties, given the short-term nature of the facility. Bridging finance can be arranged in as little as a few working days, making it great for taking advantage of time-critical purchase opportunities. The funds are subsequently repaid when the property has been renovated and sold, with the developer retaining all profits generated.
- Development finance
Development finance is a specialist facility for property developers and construction companies. It works in a similar way to bridging finance, in that it is a strictly short-term solution and can be arranged relatively quickly. Development finance is particularly suitable for high-value property development and construction projects, repaid at a later date when the completed development is sold.
- Development exit finance
Development exit finance is a useful facility for extending the initial period of a bridging loan (or similar project). Where a developer is yet to find a qualified buyer for their property or needs additional time to finalise its sale, exit finance can be used to repay the original loan, and extend the repayment period temporarily.
