How can you fund these purchases?
How can you fund these purchases?
Just like when you are buying a Buy to Let property, you can use the following types of funding mechanisms. I have listed them in the order that I prefer to buy these MUFB given the complexity that are attached to them and the potential for delays before you can refinance all of your capital out.
- Cash:
This funding method is great as you can move on these type of purchases quickly and without much hassle that comes with bank financing.
However, these blocks tend to cost more than the average terraced house so may not be a viable option for a lot of readers.
I prefer cash rather than bridging as its cheaper and also if there is a delay in the paperwork, it doesn’t end up costing you the deal or a large chunk of your profit.
- Investor Finance or Joint Ventures:
You can seek investor finance and reward them with either a fixed return or a proportion of the profit and/or the overall deal.
This funding method also provides some safety against any delays in the title splitting exit.
- Traditional Mortgages:
When building MUFB you can buy them using a traditional mortgage (or a commercial loan) if they are viable collateral in their present condition and the surveyor agrees.
Mortgages with no Early Repayment Charges (ERC) is ideal, as when we come to refinance, after title splitting in 6 months on average, we will need to get out of this initial mortgage without paying high fees.
- Commercial Mortgages:
You can buy using commercial mortgages (from Lloyds bank etc) but these can be higher in interest rate, take longer to secure and will offer you less Loan to Value ratios than traditional residential mortgages. This means you will need higher deposit amount.
This is certainly not an option I consider to be worth it but for completeness sake I have added here.
- Bridging Finance:
Bridging Finance can work really well with the strategy of Title Splitting.
Bridging companies will allow you to buy some of these MUFB with some ‘issues’ with them, be that to do with their general condition or even issue with a lack of planning.
So long as you know what the issues are and how to solve them you can make buy MUFB using bridging finance. Generally speaking they will lend up to 70% of the purchase price.
However the challenge with bridging finance is that they can be expensive, especially if you get stuck on them for longer than anticipated.
