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  1. #1

    Default Bridging finance - pros and cons

    We have seen a house we like in the same neighbourhood. We want to make an offer, issue is we still have our house to sell. Ideally we usually like to sell before finding a new house but in this instance we have found what we like. Question is could we use bridging finance to purchase the new house while we wait for our house to sell. We have about 50% equity in our PPOR. What are the pitfalls of doing this?

    also as we have rental property will the banks we those loans look to grab money on selling our PPOR?

    FH
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,498

    Default

    Talk to your bank and ask them!
    - how would it work?
    - will they do it?

    What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  3. #3

    Default

    Quote Originally Posted by Rosco View Post
    Talk to your bank and ask them!
    - how would it work?
    - will they do it?

    What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

    Ross
    Thanks Ross, the other scenario I see is that we use the bridge finance, get the new house under contract, ask for a longer settlement say 2 months, actively try and sell the our 1st house before or on settlement of the new house, sort of like a double settlement where we are not having to pay for 2 mortgages. Win/win.
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  4. #4
    Join Date
    Apr 2009
    Posts
    781

    Default

    If you are the only offer then put in a clause conditional on selling your house. Include a provision if the seller has someone else come with an unconditional offer then to give you 14 days to go unconditional first option. That buys you time to sell your house and means the seller doesn't lose your offer, win/win.

    If there are multiple offers then make your offer lower to factor any bridging costs you might need, or include the same condition above and make your offer more attractive with a higher offer.

    Get a valuation for your house and show the seller you are serious to sell as you already have it on the market.

  5. #5

    Default

    Quote Originally Posted by DaveW View Post
    If you are the only offer then put in a clause conditional on selling your house. Include a provision if the seller has someone else come with an unconditional offer then to give you 14 days to go unconditional first option. That buys you time to sell your house and means the seller doesn't lose your offer, win/win.

    If there are multiple offers then make your offer lower to factor any bridging costs you might need, or include the same condition above and make your offer more attractive with a higher offer.

    Get a valuation for your house and show the seller you are serious to sell as you already have it on the market.
    Thanks, that makes perfect sense.
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  6. #6
    Join Date
    Mar 2015
    Location
    Brisbane Wellington Auckland
    Posts
    682

    Default

    Quote Originally Posted by Rosco View Post
    Talk to your bank and ask them!
    - how would it work?
    - will they do it?

    What is your plan if your personal house won't sell? This is the biggest risk. If you can't sell quickly, then you are probably forced to keep dropping the price until it sells. So a risk could be that your sell your personal house for less than you would really want.

    Ross
    Generally what do the banks look at when they supply bridging finance (for investment property rather than personal residence) and do they charge a higher interest ? (I referring to exceeding the LVR for brief (hopefully) rather than double interest as there would be income on both properties.
    (I have not done this in the past )

  7. #7

    Default

    Bridging finance was going to be charged out at a rate of 6% IO for up to a year, was going to cost us 9k a month on IO. Too much of a risk so we are just going to put in a contract subject to sellling our PPOR 1st, ideally we want to do a double settlement so trying to line up a buyer now so that we can settle on the same day.
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  8. #8
    Join Date
    Apr 2009
    Posts
    781

    Default

    Quote Originally Posted by Frezzinghot View Post
    Bridging finance was going to be charged out at a rate of 6% IO for up to a year, was going to cost us 9k a month on IO. Too much of a risk so we are just going to put in a contract subject to sellling our PPOR 1st, ideally we want to do a double settlement so trying to line up a buyer now so that we can settle on the same day.
    Good call. You always have the option to pursue the bridging finance if you feel you're close to selling your property.
    You also have the option to renegotiate the price before going unconditional on the house you're buying.

  9. #9

    Default

    Quote Originally Posted by DaveW View Post
    Good call. You always have the option to pursue the bridging finance if you feel you're close to selling your property.
    You also have the option to renegotiate the price before going unconditional on the house you're buying.
    yes that’s true, signing a contract tonight, conditions are finance, subject to selling PPOR and lim. Can’t think of anything else. What about settlement, should we make this longer to enable time to sell our PPOR?
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  10. #10
    Join Date
    Apr 2009
    Posts
    781

    Default

    Quote Originally Posted by Frezzinghot View Post
    yes that’s true, signing a contract tonight, conditions are finance, subject to selling PPOR and lim. Can’t think of anything else. What about settlement, should we make this longer to enable time to sell our PPOR?
    You could add a condition subject to a building inspection if you haven't had a builder through already.

    It's more beneficial for you to make it a longer settlement because the seller may not agree to an extension later on in case you need it.

    Are you using the same agent in both transactions ?


 

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