Rikvin Capital Fund Liquidity Solution Highlights
- 24 Hours In-Principal Approval
- 3-18 month loan term
- USD 1 - 30 Million Loan Amount
- Flexible Payment Terms
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Comprehensive Guide to Bridging Loans and Auction Finance
What is Auction Finance?
Auction finance is fast and flexible financing specifically designed for purchasing properties at auctions. It provides quick funding options, often in the form of bridging loans, to meet the unique needs of auction buyers.
Why have Property Auctions become so popular lately?
Property auctions have gained significant popularity among buyers, especially those seeking unique investment opportunities or properties at reduced prices. The appeal of property auctions lies in their convenience and the potential for finding hidden gems that may not be available through traditional channels. Auctions offer a level playing field for buyers, whether they are seasoned investors, first-time buyers, or those looking to expand their property portfolios.
Why is Auction Finance necessary?
Auction finance, particularly through bridging loans, is crucial for property purchases at auctions due to the specific dynamics of these transactions. Here’s why auction finance is essential:
Time-sensitive nature: Auction purchases have strict completion timelines that traditional lenders may not meet. Bridging loans provide quick funding to ensure timely completion.
Cash requirement: Auctions typically require immediate access to funds, which can be challenging for buyers. Auction finance provides the necessary funds, such as a 10% deposit, allowing buyers to participate confidently.
Competitive bidding environment: Property auctions are highly competitive, making it difficult to secure a winning bid. Auction finance demonstrates financial readiness, increasing the chances of a successful bid.
Unforeseen property issues: Auction properties may have hidden issues or require significant renovations. Auction finance provides funds for repairs or renovations, enabling buyers to overcome challenges and complete their purchases successfully.
Benefits of Bridging Finance in Auction Scenarios
When it comes to purchasing properties at auctions, bridging loans play a vital role in unlocking the full potential of these opportunities. Here are some key benefits of using bridging finance for auction purchases:
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Fast approval processesWith streamlined approval procedures, bridge loans offer swift processing times, allowing investors to seize time-sensitive opportunities at auctions without delays or missed chances. -
Financing properties that may not meet traditional lending criteriaBridging finance provides flexible short-term cash loans tailored to the property’s potential rather than relying solely on the borrower’s financial history or credit score. -
Speed and flexibility in securing properties at auctionsBridging finance offers quick turnaround times, enabling investors to seize time-sensitive opportunities at auctions. Repayment options can be customized based on market conditions and investment goals. -
Opportunity to secure unique propertiesAuctions often feature unique properties that may not be available through conventional channels. Bridging finance enables you to seize these opportunities by providing the necessary funds to make a successful bid and complete the purchase. -
Competitive edgeHaving pre-arranged bridging finance gives you a competitive edge over other buyers. With funds readily available, you can act swiftly and confidently when placing bids, increasing your chances of winning the auction.
To learn more about bridge funding and how it can benefit your business, we encourage you to read our informative blog articles explaining everything you need to know about bridge loans.
UK: Everything you need to know about bridge loans in UK
SG: About bridging loans in Singapore
What is Auction Purchase Rescue?
The rapid response of bridging lenders is best seen when they “save” properties for their customers. Sometimes, a bridging loan company might not deliver the agreed funds on time, leaving the customer in a difficult spot. If the property payment deadline is just a few days away, the buyer faces a tough situation. However, bridging lenders often work non-stop to come up with a solution. Looking at examples from some of the busiest lenders in this field, you’ll find stories of deals rescued at the last moment or sorted out in just two days.
This showcases the impressive speed and adaptability that define bridging lenders, and the important role they play. Without quick financial solutions like these, it would be very hard for auction bidders to place a sure bid, limiting their chance to take advantage of opportunities as they come up.
One exemplary case of purchase rescue involved a company facing a challenge after making a 30% downpayment on a commercial property. Due to the Covid-19 pandemic, their bank dropped the loan-to-value ratio from 70% to 50%. With only seven days left and a $3.25 million downpayment at risk, they reached out to us at Rikvin Capital.
We acted promptly, performing due diligence and preparing legal agreements in just 72 hours. Our quick response helped the company secure the property without losing their downpayment. They later refinanced with a different bank and repaid the loan to us. For an in-depth look at this real-life scenario, visit our Portfolio.
Case Studies: Successful Bridging Finance Solutions for Property Auction Purchases
Real-life examples of property buyers securing purchases at auctions
To illustrate the effectiveness of bridging finance in property auction scenarios, let’s explore a real-life case study that demonstrates successful purchases facilitated by bridge loans.
Case Study: Efficient Use of Bridge Loans in Auction Finance
In the domain of property investment, opportunities to secure valuable properties below market value can emerge unexpectedly. One such opportunity occurred for a property investor who found a competitively priced apartment in Orchard Road, Singapore up for auction. However, a delay in their bank loan approval process posed a challenge.
Given the time-sensitive nature of auctions, the investor needed an immediate financial solution. Here, auction finance, specifically bridge loans, provided the required course of action.
When this roadblock arose, the investor decided to consult with us. After thoroughly evaluating the investor’s circumstances, we were able to tailor a solution that perfectly suited the investor’s requirements.
Within a week, we provided a bridge loan of S$6,300,000. This sum was calculated based on a Loan-to-Value (LTV) ratio of 70%, a common range for bridge loans. The payment schedule was set to consist of monthly interest payments over a duration of 12 months, a structure that is typical in bridge financing due to its short-term nature.
Armed with the bridge loan, the investor could finalize the transaction on schedule, securing the property for a price notably below its market value of S$9,000,000. The acquired asset, a condominium located on Orchard Road, offered significant potential for return on investment.
Read more about this case here.
How bridging loans played a pivotal role in this successful purchase
This case study illustrates the strategic value of bridge loans in auction finance. For this investor, the experience highlighted the advantage of engaging with a financial institution that can provide rapid and appropriate financial solutions in critical scenarios. In terms of property investment, such agility can be key to acquiring assets that promise substantial returns.
10 Steps to navigating Property Auctions successfully
In the following sections, we will equip you with the knowledge needed to navigate the auction process effectively and maximize your chances of securing profitable properties.
Before the auction: Important Considerations for Auction Purchases
To ensure successful auction purchases, it is essential to keep five crucial steps in mind:
- Finding and Selecting Properties for Auction Bidding
- Conducting thorough Property Inspections and Valuations
- Understanding legal Implications and potential Risks
- Financial Planning and Budgeting for Auction Purchases
- Working with Professionals to navigate the Auction Process
Finding and Selecting Properties for Auction Bidding
Finding the right property for auction bidding requires careful consideration and research. Start by exploring auction listings, which are usually available online or through auction houses.
These listings provide details about the properties, including their descriptions, locations, and guide prices. Take the time to review the listings and shortlist properties that align with your investment goals and budget.
Follow this link to find a list of the top property auction houses in the UK.
In Singapore’s auction market, leading auctioneers like Knight Frank, JLL, Colliers International, and Edmund Tie & Co. offer a wide range of auction properties.
Conducting thorough Property Inspections and Valuations
To make informed decisions and mitigate risks, conducting thorough due diligence is essential when considering property purchases at auctions. It is crucial to inspect the property carefully, assessing its condition, identifying any potential structural or maintenance issues, and estimating the cost of necessary repairs or renovations. Engaging the services of a qualified property inspector or surveyor can provide valuable insights into the property’s true condition and help avoid any unforeseen expenses down the line.
Additionally, obtaining a professional property valuation is crucial to determine the fair market value of the property. A professional valuer assesses various factors such as location, comparable sales, property size, and condition to provide an accurate valuation. This information is vital in assessing the potential profitability of the investment and setting an appropriate budget for the auction.
Understanding Legal implications and Potential risks
Property auctions come with legal implications and potential risks that investors must be aware of. It is important to thoroughly review the auction terms and conditions, as well as any legal documents associated with the property. This includes examining the title deeds, planning permissions, lease agreements, and any other relevant documentation. Consulting with a real estate lawyer can provide valuable guidance in understanding the legal aspects and potential risks involved in the auction purchase.
Furthermore, investors should consider any outstanding debts or liens on the property that could affect its ownership or value. Conducting a comprehensive search for encumbrances ensures that there are no surprises after the purchase.
Financial Planning and Budgeting for Auction Purchases
Before participating in a property auction, it is crucial to have a well-defined financial plan and budget in place. Determine the maximum amount you are willing to spend on the property, taking into account not only the purchase price but also additional costs such as auction fees, legal fees, renovation expenses, and bridging loan interest.
Careful financial planning helps avoid overextending your budget and ensures that you can comfortably cover all associated expenses. It is advisable to consult with a financial advisor who can assist in creating a realistic budget and help you evaluate the financial feasibility of the investment.
Working with Professionals to navigate the Auction Process
Navigating the auction process can be complex, especially for those new to property auctions. Collaborating with professionals who specialize in property auctions and bridging finance can provide invaluable support and guidance.
Real estate agents experienced in auctions can help identify suitable properties, provide insights into market trends, and assist in formulating bidding strategies. They can also act as a liaison between the investor and the auctioneer, ensuring a smooth and efficient process.
Engaging the services of a reputable bridging finance company is also crucial. Bridging finance companies specialize in providing short-term loans for property acquisitions, including those in auction scenarios. They have the expertise to assess the investment potential, evaluate loan applications efficiently, and provide competitive interest rates. Collaborating with such professionals can streamline the financing process and increase the likelihood of a successful auction purchase.
It’s important to have a well-defined exit strategy when using bridging loans for auction purchases. Your exit strategy outlines how you plan to repay the bridging loan within the loan term. Common exit strategies include selling the property, refinancing with a traditional mortgage, or using other sources of funding to clear the loan.
What to do on Auction Day:
Bidders attend the auction and listen to the auctioneer’s instructions. They can participate in bidding either in person, by phone, or online, depending on the auction format.
Bidding: Bidders place their bids on the properties they are interested in. It’s important to stick to your predetermined budget and avoid getting caught up in bidding wars that exceed their financial limits.
After winning the Auction: The Next Steps for Property Buyers
If your bid is successful and you win the auction, congratulations! Winning an auction is an exciting achievement, but it’s important to take immediate action to secure the property and complete the purchase within the specified timeframe.
Pay the 10% deposit: As a winning bidder, you will typically be required to pay a 10% deposit immediately after the auction. Ensure you have the necessary funds available to cover this deposit.
Contact your solicitor: Provide your solicitor’s details to the auction house, as they will handle the legal aspects of the purchase. It’s essential to have a solicitor who is experienced in auction transactions to ensure a smooth process.
Arrange financing: If you haven’t already secured financing through a bridging loan or other means, now is the time to finalize your funding. Contact your chosen lender to initiate the loan process and ensure the funds will be available within the required timeframe.
Complete the purchase: Once the deposit and financing are in order, work closely with your solicitor to complete the necessary paperwork and finalize the purchase. Be diligent in meeting the contractual obligations and timelines to ensure a successful and smooth transaction. Once the purchase is complete, the bidder becomes the legal owner of the property. They can proceed with any necessary renovations, refinancing, or other plans they have for the property.
Securing a Bridging Loan for Property Auctions
4 Steps to Arranging Auction Finance
Securing auction finance is vital for a successful property purchase. In this section, we’ll outline four steps to help you secure the necessary financing. From budgeting to loan application, let’s explore how you can obtain the funds needed for your auction bid.
Step 1: Determine your budget
Before you embark on your auction journey, it’s crucial to assess your financial situation and determine how much you can afford to borrow. Consider factors like your existing assets, income, and repayment capabilities. This will give you a clear budget to work with during the auction bidding process.
Step 2: Research bridging loan lenders
Not all lenders are created equal, especially when it comes to auction finance. Take the time to research and identify reputable bridging loan lenders with experience in auction purchases. Look for lenders who offer competitive interest rates, flexible loan terms, and a streamlined application process.
Step 3: Gather necessary documentation with PLEBS
The acronym PLEBS serves as a handy reminder of the key documentation that lenders need to provide a preliminary loan offer before auction day. Prepare these documents in advance to streamline the application process.
Purpose: What is the intended use of the loan? Is it for a straightforward purchase or for a purchase along with refurbishments? The specific details about your plans for the property matter, as there are different types of bridging loans tailored for different purposes.
Lending: How much financing do you need? Usually, the maximum loan-to-value ratio (LTV) stands at 75% for unregulated loans (purely for investment or commercial properties) and 70% for regulated loans (personal use properties). Remember, winning bids require a 10% deposit on auction day, so ensure these funds are ready for transfer immediately after the auction.
Exit: Lenders are keen to understand your repayment strategy. Are you planning to refinance with a long-term mortgage, or sell the property after refurbishments? Regardless of the method, lenders need reassurance that their loan will be repaid on time.
Borrower: Lenders are interested in knowing about your background and experience in property investment. Bridging lenders are generally more focused on the property and your assets and liabilities rather than your personal income. However, they’ll be interested in knowing about any previous credit issues.
Security: The property serving as the loan’s collateral is of utmost importance to lenders. They will want to know about the property, its condition, your plans for it after any proposed refurbishments, its potential rental income, and its likely sale price if you plan to sell it.
Step 4: Submit your loan application
With your budget in mind and necessary documentation ready, it’s time to submit your loan application to the bridging loan lender. Many lenders offer online applications for convenience and speed. You can apply for a bridging loan on our website.
How much does bridging finance cost?
While bridge loans can have a higher price tag than standard mortgages, it’s crucial to note that they are intended for short-term use. Additionally, securing a traditional mortgage for an auction property isn’t feasible.
Bridge loans typically have a term ranging from 6-12 months, extending up to 24 months in some instances. An added advantage is the flexibility to settle the loan earlier, with interest charged only for the duration the loan was active.
In general, the monthly cost for bridge loans oscillates between 0.75 – 1%, which is contingent on the Loan to Value (LTV) ratio and the lender’s evaluation of the loan’s risk factor. You will be aware of this prior to the auction as it’s included in the preliminary loan offer. Oftentimes, an arrangement fee of about 2% is applicable.
The treatment of interest on bridge loans can appear puzzling, typically falling into two categories:
- Rolled-up interest: No payment is required throughout the loan’s term. The interest accrues over the duration of the loan and is paid off when the loan is settled.
- Retained interest: The total interest is deducted upfront from the loan and ‘retained’ by the lender. If the loan is settled before the agreed date (for example, after 9 months instead of 12), any ‘unused’ interest will be reimbursed by the lender.
Conclusion
Bridging finance solutions can offer significant advantages for investors interested in property purchases at auctions. These financing options typically come with competitive interest rates, efficient approval processes, and the flexibility to finance properties that may not meet traditional lending criteria. By utilizing bridging loans, investors gain the opportunity to seize lucrative opportunities and make swift acquisitions in the property market.
While bridging loans have advantages in auction finance be cautious about their drawbacks. They can be costly with high interest rates and fees. They should only be temporary, so plan for a reliable exit strategy. Emotions should not cloud decision-making, and long-term implications should be carefully considered.
By conducting thorough due diligence, understanding legal implications, and engaging in meticulous financial planning, you can mitigate risks associated with auction purchases. Our team of professionals, including property inspectors, real estate lawyers, and financial advisors, is here to support you throughout the auction process, offering personalized financing solutions, streamlined approval procedures, and competitive interest rates.
Whether you’re an experienced investor or new to property auctions, consider the advantages of bridging finance. You can our website to learn more about how our bridging finance solutions can help you seize opportunities and make profitable acquisitions at property auctions.
Don’t let opportunities in the property market slip by. Get in touch with us today and start your auction journey with assurance. Together, we can tap into the wealth of property auctions and optimize your investment returns.
FAQs About Bridging Loans For Property Auctions
Auction finance refers to a short-term loan arrangement, such as bridging loans, used by property buyers who wish to purchase a property at an auction. This type of financing is essential due to the specific dynamics of auction transactions, which include strict completion timelines and immediate access to funds.
Bridging finance offers fast approval processes, flexibility in financing properties that may not meet traditional lending criteria, quick turnaround times, the opportunity to secure unique properties, and a competitive edge in the auction.
In an auction scenario, a bridge loan provides immediate funding, calculated based on a Loan-to-Value (LTV) ratio, usually around 70%. The loan enables the investor to finalize the transaction on schedule, and the payment consists of monthly interest payments over a short duration, typically 12 months.
A property auction is a public sale where properties are sold to the highest bidder. It’s a platform where buyers can potentially secure properties at below market value.
The key steps include finding and selecting suitable properties, conducting thorough property inspections and valuations, understanding legal implications and potential risks, financial planning and budgeting, and working with professionals to navigate the auction process. Bidding effectively on auction day, following through promptly after a successful bid, and securing necessary financing are also crucial steps.
Due diligence refers to the comprehensive appraisal of a property to evaluate its commercial potential. This involves inspecting the property, identifying any potential issues, and obtaining a professional property valuation.
Legal implications can include requirements to adhere to auction terms and conditions, handle legal documents associated with the property, and manage any outstanding debts or liens on the property. Potential risks might involve undisclosed property damages, unexpected financial burdens, or legal complications.
PLEBS stands for Purpose, Lending, Exit, Borrower, and Security. These represent key information and documentation that lenders require to assess your loan application for a bridging loan.
Costs associated with bridging finance usually include a monthly interest rate, typically between 0.75 – 1%, and an arrangement fee of around 2%. The exact costs depend on factors like the Loan to Value (LTV) ratio and the lender’s assessment of the loan’s risk factor.
Introducing Rikvin Capital’s Fund Liquidity Solutions: Supporting Mature Funds in Challenging Times
