When buyers are seeking to purchase a worn-down property to improve and sell, they will need to consider their options for financing the purchase. There are things to consider for each method, including the time it will take to complete the purchase, and what potential draw-backs may exist with each method. These 4 ways for financing a refurbishment will detail the benefits and details of each method.
1) Raising funds by re-mortgaging the buyer's home: Some buyers will choose to re-mortgage their home in order to fund their property refurbishment project. This method has become quite popular due to the fact that it is very often the least expensive way to get the necessary financing. It is important that buyers disclose their intention to use the funds to place a deposit on an investment property. Buyers should deal with an independent mortgage broker when choosing this method. It is also wise for buyers to seek consultation regarding the risks their family will be exposed to when re-mortgaging the family home. An accountant can help buyers structure their mortgage account in way that will offset costs of mortgage directed to the refurbishment property with any profits from the sale.
2) Deferred Completion: This method consists of a contract exchange upfront with a set date for completion of the contract at some point in the future. Buyers will then make an offer based on these terms, detailing that they wish to refurbish between contract exchange and completion. Since most sellers will be advised against this by their lawyers, it may be necessary to offer 50% payment upfront. This would need to be in cash, and therefore will only be an option for some buyers. The reason sellers are advised against this method is that buyers could potentially wreck the property and not complete the contract.
3) Refurbishment Mortgage: This third option is a standard lease to buy contract. Buyers should be aware of potential charges regarding early repayment if selling is the intention.
4) Bridging Finance: If buyers have a property with no mortgage, it is possible to get full funding by providing a charge against two properties: an existing property as well as the refurbishment home. Bridging financiers are more likely to lend to wide ranges of people as long as they see potential for making a profit.
These options will give buyers some insight into what might work for their situation. Property refurbishment can be a profitable endeavour if the buyer is educated. Finding the best financing option is important, not only for the speed of transaction necessary, but for financial and contractual concerns. Buyers may need to explore several options in-depth or meet with financial advisers before making a decision.
A good strategy for buyers is to develop a list of positives and negatives for each option. This will help buyers to understand the long-term effects of each financing option. It will also make clear which choice would create the most ease in completing the transaction. Buyers should aim to reduce unnecessary stress from a complicated contract since they will also be engaged in managing the property refurbishment project.
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