Private Funding for Portfolio Property: What to Know

Private funding can help a Moorabbin investor buy a portfolio property when a bank cannot move at the pace or structure the purchase needs. It is a short-term tool with higher costs, so it works well only with a clear plan for how you will repay it.

This article is for investors who already own property and want to add another, but have hit a hurdle with a traditional lender. It explains how private funding works, what it costs and when it suits a purchase.

What Is Private Funding for a Portfolio Property?

Private funding is a loan from a non-bank or specialist lender, secured against property and assessed mainly on the asset and your exit plan. It is often used for a short term loan while a longer-term solution is arranged.

Banks lean heavily on serviceable income, and many investors with large portfolios, variable income or complex structures can reach a limit. A private lender usually looks harder at the security, the loan to value ratio (LVR) and how the loan will be repaid. Our private lending service can help investors compare private funding options for their purchase.

When Does a Private Loan Make Sense for an Investment Purchase?

A private loan makes sense when the purchase has a clear deadline or feature that a bank loan does not fit, and you have a credible way to repay it. Without that exit, the higher costs can outweigh the benefit.

Common situations include buying before you can sell another property, buying with a short settlement, or buying a property that needs work before a bank will lend against it. Others include investors whose income is hard to document under bank rules. If your income is mostly self-employed, an alt doc loan may be worth comparing first, as it can sit closer to mainstream rates.

Private Bridging Finance: A Worked Example

A bridging loan covers the gap between buying a new property and receiving funds from a sale or refinance. The example below uses an illustrative rate of 6.75% p.a., which is not a quote.

Consider a Moorabbin investor who finds a second investment property at auction. Their current rental is under contract to sell, but settlement is 90 days after the new purchase settles. They need a private funding amount of $400,000 to cover the gap.

At an illustrative 6.75% p.a., interest on $400,000 is about $27,000 over a year, or roughly $2,250 a month. Over three months that is about $6,750 in interest. Establishment and exit fees would be added on top, and these vary by lender.

The solution was to take a bridging loan with interest paid on a short term, secured against the property being sold. When the sale settled, the loan was repaid in full from the proceeds. The investor paid roughly $6,750 in interest plus fees, and secured the purchase they would otherwise have lost.

The trade-off is cost. Private rates are usually higher than bank rates, and if the sale had fallen over, the investor would have needed a second exit such as refinancing to a bank loan.

Private Loan Fees and Costs: How to Calculate the Total

The total cost of a private loan is the interest plus all fees, over the full time you hold the loan. Looking at the interest rate alone understates what you will pay.

When calculating private loan costs, ask for the establishment fee, any valuation and legal costs, and any exit or early repayment fees. Check whether interest is charged monthly or capitalised into the loan. Some loans also include a variable interest rate, so ask what could change over the term. Add everything together and compare it against the expected gain from the purchase. For a snapshot of the repayments on a longer-term loan, use our repayments page.

How Much Can You Borrow With a High LVR Private Loan?

The amount you can borrow depends on the lender, the property type and the strength of your exit plan. Many private lenders set lower maximum LVRs than banks for riskier security, and a higher LVR usually costs more.

Residential property in a metropolitan area is often seen as stronger security than land or unusual property. Lenders will order their own valuation, so the figure may differ from the price you agreed. Using other property you own as extra security can lift your private funding amount, but it puts that property at risk if you cannot repay. Our borrowing capacity page is a good starting point for seeing where a bank might land first.

Why Your Exit Strategy Matters Most

An exit strategy is the specific way you will repay the private loan, and lenders will want to see it before they lend. The usual options are selling a property, refinancing to a bank, or using funds you are due to receive.

The second exit is worth planning too. If you intend to refinance, check early what a bank will need, such as rental income evidence and a satisfactory valuation. Speaking with us about a later refinancing path before you sign helps you avoid being stuck on a higher-cost loan for longer than planned. Where the new purchase is an investment, our investment loans team can also map out the long-term loan that follows.

Is a Private Lender Right for a Moorabbin Investor?

A private lender suits investors with a clear exit, a time-sensitive purchase and a willingness to accept higher costs for flexibility. If a bank loan fits your timeline, it will usually be cheaper in total.

Moorabbin is a Melbourne suburb in the south-east, in postcode 3189, and our team works with local investors on both bank and private structures. You can read more on our Moorabbin mortgage broker page. Tax treatment of interest and fees on investment loans depends on your circumstances, so speak with your accountant before you commit.

If you are weighing up a portfolio purchase and want to know whether private funding fits, call one of our team or book an appointment at a time that works for you. We will look at your numbers, your exit options and the total cost before you decide.

Frequently Asked Questions