How can I raise finance to invest in property?
When thinking of ways to raise capital for an investment there are quite a few options. Some of which may not be available to everyone, but that doesn’t mean there isn’t a way to raise the money you need. Especially when it comes to property.
With this in mind, there are a few ways to find the capital you need to invest in property. Let’s take a look at them and then expand on the ideas to get a clearer picture of how to go about this. Here is a comprehensive list of the ones we will look at further;
- Save the cash yourself by putting some of your earnings away each month.
- Take out a ‘Buy to Let’ mortgage from a reputable lending company.
- Borrow from the capital you have in your own home through remortgaging, or possibly take on further advances on the current mortgage you have.
- Renting out rooms in your home.
- Borrowing money from family or friends.
- Investing with friends, family or a stranger to reduce the initial outlay.
Saving Up The Cash
Saving up the money could mean something as simple as setting up a regular transfer from your monthly income into a savings account, because if you don’t have the money available all the time you won’t want to spend it. There are a few more ways to make the amount you save each month greater so you can invest in property sooner.
Firstly you can track your spending. By being aware of where your money is going you can find ways to reduce your outgoings and increase your savings. With this in mind, you could cancel stuff that you don’t necessarily need. For example, TV subscriptions or gym memberships. You could also move home to a smaller property in a cheaper area or finally, you could simply earn more money by starting a new microbusiness on Etsy selling crafts or doing freelance work in your chosen profession.
While saving, it is important to stay well informed about the property market and to make as many relevant contacts as possible. View plenty of properties and remember to record prices and valuations. It pays off to be well informed.
Buy to Let Mortgages
When looking into Buy to Let mortgages, always remember that lenders are less flexible with these types of loans than with traditional mortgages. Small historical issues such as a missed payment on a credit card may be fine, but defaults, County Court Judgements and missed mortgage payments may pose you a serious problem. You are also advised to stay away from payday loans and any similar form of financing as lenders see this type of finance as a client being unable to manage their money sufficiently or having a low reserve of funds in case of an emergency.
There are a few prerequisites when applying for a Buy to Let mortgage. Firstly, there is a minimum income threshold of £25000 to ensure that you will have the majority of the market available to lend you the money. There is also the number of properties you already own to consider, as this will impact on which lenders will be able to lend to you. Some of the lenders will have a maximum number of properties you can have in your portfolio to receive funding. In this case it is always advised that you speak with an experienced mortgage broker for advice.
The amount you can borrow is connected to the rental return of the property in question. Lenders work on a calculation of the amount being borrowed at a fixed rate of interest, for example 5%. This figure is then tallied at 125% of the monthly payment for example and the rental figure needs to be above this value.
When borrowing against your own home you need to weigh up the options available to you. Do you want to be able to start investing in property sooner, or have the security of paying off your personal mortgage? Always check with your lender or broker, as some will be happy to let you borrow more, others won’t. Personal mortgages are the cheapest debt, but the property you buy will be 100% mortgaged. Always ensure you will be cash flow positive after repayments. Personal mortgages will be assessed on income, so ensure you can prove you have high enough earnings to tap into equity.
Subletting Rooms in Your Home
When considering subletting remember the first £7500 you receive is tax free if you own your home. Finding a lodger should be relatively easy with a plethora of websites available to advertise your room for rent. Also, there is the option to advertise the space available through Airbnb and run your spare room as a let by demand. It can be time consuming though, dealing with booking enquiries, checking in guests and cleaning. But the profit can be potentially very good in areas with high tourism and business demand.
Borrowing from Family or Friends
‘How to get started in property’ books always seem to mention borrowing money from family, and this is good in theory, as long as your family doesn’t mind lending money to someone with no track record in property. If you do your homework and can produce a well-rounded case this could be a viable option. If you are feeling particularly confident, it could be worth asking a relative, who is likely to leave you something in their will, for an advance on some or all of the money that is likely to be left for you.
Investing with Friends, Family or a Stranger
Warning, getting money involved in personal relationships is a great way to ruin them. That aside, discuss what you want to do, how you’ll do it, everything that could go wrong and the potential outcomes for each of these scenarios. Plan for if someone wants to sell and the other/others do not. Also plan for if someone needs their money back unexpectedly. Talk about everything and never forget to get this down in writing as you will want a written record of all your agreements.
When considering investing in property with a stranger, or person you meet specifically for the purpose of investing in property together. Consider researching this person thoroughly, personally and financially, and always weigh up the experience they could bring to the deal. This could be in construction skills or in the access they could have to unusually good deals.
In conclusion, there are many ways to raise the capital to invest in property. More so than ever before and more than are discussed here. So take your time, research thoroughly, consider all your options and start saving or investing your time in earning more money. Ask that relative if they want to invest with you or lend you some money to get started. Get in touch with the mortgage broker and start your journey. There is definitely money to be made in property.