The Pros and Cons of Bridging Loans for Investment Property

Should You Buy or Sell First?

As a Queensland FIFO worker looking to expand your property portfolio, you've probably wondered whether you should buy or sell first when purchasing an investment property. The timing challenge is real - you might find the perfect investment opportunity but still need to sell your existing property to fund the purchase.

This is where bridging finance comes into play. Bridging loans help bridge the gap between buying a new investment property and selling your existing home, allowing you to secure that investment opportunity without missing out.

What Is Bridging Finance?

Bridging finance is a short-term loan solution designed to help property investors purchase a new investment property before selling their existing property. These loans typically run for 6 to 12 months, giving you time to sell your existing property. If you're building a new investment property, the loan term can extend to 12 months.

The loan structure works on two key concepts:

• Peak Debt: The maximum amount you'll owe, which includes your existing loan plus the bridging loan amount for the new property
• End Debt: What you'll owe after selling your existing property and paying down the bridging loan

Access Bridging Loan Options from Banks and Lenders

When applying for a bridging loan, you'll have access to bridging loan options from banks and lenders across Australia. Different lenders offer varying bridging loan rates, loan to value ratio (LVR) requirements, and application processes.

Some lenders provide:

• Variable interest rate options
• Fixed interest rate loans for the bridging period
• Interest rate discounts for existing customers
• Streamlined application processes

Your borrowing capacity will depend on your financial situation, including your FIFO income, existing debts, and the contract purchase price of the new investment property.

Understanding Bridging Loan Costs

Bridging loans typically come with higher interest rates than standard investment loans for FIFO workers. The loan interest rate reflects the short-term nature and additional risk involved. Most bridging loans use:

• Variable loan rates: These can fluctuate during your loan term
• Interest Capitalisation: Interest is often added to the loan balance rather than requiring monthly payments
• Additional fees: Including lenders mortgage insurance (LMI) if your LVR exceeds 80%

When calculating bridging loan repayments, remember you'll typically only pay interest on the bridging portion until you sell your existing property.

The Application Process

The loan application for bridging finance requires thorough documentation of your financial situation. You'll need:

1. Recent bank statements
2. FIFO employment contracts
3. Property valuations
4. Sale contracts or listing agreements
5. Purchase contracts for the investment property

Many lenders now offer a streamlined application process for FIFO workers, recognising the unique nature of your employment. Getting loan pre-approval can help you move quickly when investment opportunities arise.

Pros of Bridging Loans for Investment Property

Timing Flexibility
You can secure your investment property without waiting for your existing property to sell, preventing you from missing out in competitive local property markets.

Cash Flow Management
An offset account linked to your bridging loan can help minimise interest costs while you wait for your property to sell.

Portfolio Growth
Bridging finance allows you to continue expanding your property portfolio without delays caused by settlement timing issues.

Cons of Bridging Loans for Investment Property

Higher Interest Costs
Bridging loan rates are typically higher than standard home loan or investment loan rates, increasing your overall borrowing costs.

Dual Property Expenses
You'll face carrying costs on both properties, including rates, insurance, and potentially stamp duty on the new investment property.

Sale Pressure
If your existing property doesn't sell within the bridging loan term, you may face pressure to reduce the asking price or extend the loan at additional cost.

Is Bridging Finance Right for Your Situation?

Bridging loans work particularly well for FIFO workers who:

• Have stable employment contracts
• Own property in strong local property markets
• Have found an investment opportunity they can't afford to lose
• Can service both properties temporarily if needed

However, they may not suit everyone. Consider your borrowing capacity, job security, and ability to handle dual property expenses before committing.

Getting Pre-Approved

Before searching for investment properties, consider getting pre-approved for bridging finance. This process helps you understand your peak debt capacity and gives you confidence when making offers.

Pre-approval also demonstrates to real estate agents and vendors that you're a serious buyer with confirmed funding, which can be crucial in competitive investment markets.

Bridging loans offer Queensland FIFO workers a valuable tool for investment property purchases, but they require careful consideration of costs and risks. Understanding your options and working with experienced brokers familiar with FIFO employment can help you make informed decisions about your property investment strategy.

Call one of our team or book an appointment at a time that works for you to discuss your bridging finance options.