The most difficult part of getting into property developing is usually based round never having
enough money to put down as a deposit or realising cash for refurbishment costs. Simply working longer hours or doing overtime only seems to take
away more of your time from property developing.
There are a number of positive ways you can raise the monies required to get you on the property ladder enabling you to build a property portfolio.
Ways to raise money
Personal Savings
You can use your own savings to fund the purchase of an investment property. The advantage of this approach is that although you’re risking your own savings, you will save on loan interests and you can avoid any restrictions that may be imposed by borrowing monies from other establishments.
Borrowing from friends and family
Borrowing the funds from family or friends is an efficient way to raise money for property investment. Unfortunately the funds can be limited and often come with time constraints, putting unwanted pressure on you to sell or refinance the investment quickly to return the funds.
Remortgage
Being a homeowner, you may have sufficient equity in your property to be able to remortgage. Although this will probably increase your monthly repayments, it is one of the quickest and easiest ways to raise a deposit.
If you need help or advise in remortgaging your property then please click on the link below and fill out a simple one step enquiry form. The PublicAngel Mortgage Guru will contact you with the expertise to find the best options available to remortgage.
http://www.publicangel.com/GeneralMortgage.php
Joint Venture (JV)
Using other people’s money is definitely an effective way to raise finance. There are many people who are ‘sitting pretty’ with plenty of money in their bank account who do not have the time or inclination to use the funds for property investment. Begin by looking to a joint venture with close family, friends, work colleagues eventually networking with people too busy to invest themselves but who would be interested in a joint venture.
Here are two examples of ways in which a JV can work for you.
1. Equal partners can both contribute 50% each towards the deposit and refurbishment costs.
2. A silent partner finances 100% of the costs, you in turn source, purchase, refurbish and sell the property splitting the profits equally.
Never undertake a JV without seeking advice from your accountant and solicitor who will be required to draw up a JV partnership agreement. This will legally protect both parties should there be a dispute.
Property Club
Taking the JV theme further and introducing additional partners to raise the finance means you are potentially creating a Property Club. Similar principles apply as with the JV partnership. However, with 3 or more partners involved be sure to establish the goals clearly, outlining each partner’s role and their responsibilities.
Lead Generator/Introducer
When you begin to network within the property circles, you will establish business relationships with other professionals involved with every aspect of the property sector. This will enable you to make easier connections with accountants, mortgage brokers, solicitors, insurance companies, letting agents and estate agents etc. If you capitalise on these professional connections establishing a business arrangement with each category of service provider, you can command payment for every lead you pass on to them.
For example you can easily request £200 - £300 for every person you refer to your mortgage broker. Setting up this kind of referral rate with each professional will soon accumulate a sizeable deposit over 6-12 months.
Sourcing Agent
Setting up a business as a sourcing agent has many advantages for a property investor. You will obtain valuable knowledge and contacts while sourcing properties for other people who have no time and few contacts of their own, giving you the necessary experience to eventually source your own properties.
A sourcing agent usually charges a reservation fee of approx £500 followed by a success fee on completion of anything ranging between 0.5% to 2% of the final purchase price. The success fee can be quite substantial as many properties are over £100,000. However, it is imperative to collect your success fee when contacts are exchanged which can be organised through your own solicitor.
Options
An option is an agreement that gives you and only you the right to buy the property in a specific timeframe e.g. 3-6 months. Make the agreement legally binding, and then sell the Option for profit.
For example: You agree to purchase a house for £75,000, when its true surveyed market value is £100,000. The seller signs an option agreement which gives you the exclusive right to buy the property for £75,000 within the next 3-6 months. You have to pay the seller for the agreement to make the contract binding but the amount can be as little as £1 if both parties agree. After the agreement is signed you register the option with the land registry. At which point you can sell the agreement for £10,000 or as much as you can get.
In this situation you need to have a lot of pegs in the right holes. The seller is happy because they've sold the house. Your buyer is happy because they've got a below market value deal and you’re happy because you've just made £10k or more for relatively little work without owning the property.
Mortgages
The following examples show the various types of mortgage used to purchase an investment property.
Repayment Mortgage
Provided you have repaid the loan, this traditional type of mortgage remains the only way the property is actually guaranteed to be yours at the end of the mortgage term.
Your mortgage loan is divided into capital repayments (the money you borrowed) and interest payments (interest you’re being charged for the loan).
As you pay off your mortgage every month you’re actually paying off a portion of the capital loan. It may appear you are being charged more but unlike other types of mortgages you’re paying off the capital – not just the interest.
Interest Only Mortgage
An arrangement where you’re only paying off the interest on the loan.
None of your original capital loan is being directly repaid. You are expected to have made provision by setting up a separate investment fund into which simultaneous monthly payments are made to coincide with end of the mortgage term.
This type of mortgage is usually preferred by most investors as the repayments are cheaper allowing the property to stack up against the rental income and less money is tied up in the property. There are also tax benefits to be made claiming back on the tax on the interest payments made.
Buy To Let Mortgage
After the interest only mortgage this is the next cheapest option. Generally you will be required to provide 15% of the property value as a deposit. Upon submission of the deposit, the mortgage company will loan you an amount based on the rental income of the property you are purchasing, where rental income can be a minimum of 130% of the mortgage repayments. This percentage will vary from lender to lender.
There are many other types of mortgages available to suit your individual needs – the following are just a few.
Tracker, Capped Rate, Current Account Mortgages, Discounted Variable Rate, Fixed Rates, Flexible Mortgages, ISA Mortgages, Pension Mortgages, 100% Mortgages, Variable Rate and many more.
If you need help in deciding which type of mortgage is most suited to your circumstances then click on the link below and PublicAngels Mortgage Guru will call you to discuss your needs.
http://www.publicangel.com/GeneralMortgage.php
Bridging Loans
This type of loan is usually taken out to solve a temporary cash shortfall that may have arisen when buying a property or alternatively when paying for a renovation.
A typical example when a bridging loan is required is the cross over between selling one property whilst purchasing another. Another reason for requiring a bridging loan could be the purchase of a property at auction. As bridging loans offer more risk for the lender than the normal housebuyer’s loans, they are more expensive and should only be used where you are certain they will be repaid within 6 months.
Credit Cards
Although I would never advise anyone to purchase a property using credit cards due to high interest charges, you may find them useful to help pay for fees and some refurbishment.
Credit Record
There will always be a time, as you progress in investing, when you will need to borrow money from a lender. The lending can come from various sources such as credit cards, mortgages, personal loans, HP agreements etc. The success of borrowing money is due in the main to having a good credit rating.
Your credit record will detail every time you may have borrowed money previously, every time you moved house, every person registered at that address and so on.
It is critical to keep your credit rating as high as possible to give you access to the best forms of lending with the best rates. The rating greatly influences your approval of any type of loan.
It would be beneficial to get a copy of your credit record to ensure that the information kept on your file is correct as mistakes can occur. Credit rating agencies like Experian (www.experian.com) and Equifax (www.equifax.com) can provide you with the details on your credit for a small fee. Check you credit records and address any problems before you attempt to apply for any borrowing.
To maintain a healthy credit record ensure that your bills and credit card payments are made regularly and on time. Ensure that anyone living with you also maintains a clean record of credit.
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