If you’re thinking about investing in property and are unsure how to get started we’ve pulled together 6 ways to raise capital to buy an investment property.
The first hurdle for many would-be investors is to figure out how much they want to spend on an investment. Whilst the intention might be to use a buy-to-let mortgage to fund a significant proportion of the overall purchase, an investor still needs to put in a certain amount of capital.
It’s not always obvious how to raise capital to buy investment property and there’s a common misconception that you need to have a lump sum of cash that is free to use as a deposit on a buy-to-let property, and whilst there are some elements of truth in that, here we highlight the routes that could work for your circumstances in order to either begin or grow your buy-to-let property portfolio.
The first, most obvious route to raising capital to buy investment property is to save. Do you really need those new shoes or a weekend bag? Or could you compromise on a less luxurious holiday this year to cut your spending? Perhaps simply eating less take-out would mean you save several hundreds of pounds each month.
Making short-term sacrifices in order to put aside cash each month to build capital could prove incredibly financially rewarding in the long run.
Many investment hotspots have low entry price points meaning the amount you need to save to buy a property probably isn’t as much as you thought and is far more achievable than many realise.
It might be that you own an investment property already and that all your money is currently tied up. If one of your assets is no longer meeting your investment goals it might be time to sell and use the capital to purchase another asset, or amount depending, several units.
For those downsizing their main home, there might be a release of additional equity that they wish to place into investment property rather than letting the cash sit in the bank.
We’re not insinuating you get a cash advance on a credit card – whilst some successful investors claim this is how they started, it’s a risky way to set yourself up.
When we say ‘borrow’ we’re eluding to borrowing money from a relative. It’s sometimes the case that a family member is willing to lend you the cash or allocate inheritance early, providing the case that’s needed to get started investing in property or to add to your portfolio.
It’s likely though, that for a relative to lend you some money you’ll need to put forward a compelling business case.
If you are only looking to borrow the ‘deposit’ element of the purchase and still use a mortgage, it would be worth discussing this with a mortgage broker first as some lenders don’t like it when you have none of your own ‘skin in the game’ and have essentially borrowed 100% of the purchasing funds.
Many homeowners, especially those who’ve lived in their homes for 5 or more years will now have a home that’s worth more than the amount they paid for the property initially. It’s possible to take some equity from your property to use as capital for an investment purchase.
If you already own an investment property, or have an existing portfolio and have owned those properties for several years it’s likely that the values have gone up meaning you can withdraw equity and leverage the capital to fund further purchases.
Those aged over-55 are able to withdraw part of their pension pot and use the money as they so wish. It’s popular for individuals to choose buy-to-let property for using money they withdraw early from their pension.
If you are over-55, don’t let that stop you exploring the option of using a buy-to-let mortgage. Many lenders now are happy to lend to borrowers upto the age of 80+ providing the business case for issuing the loan is strong (ie the property will make money and the bank doesn’t see it as a ‘risky’ investment).
6. Joint Venture
Some first time investors find the easiest route to getting started is to team up with a friend or family member who has the cash. Or maybe half the cash if you only have 50% of what’s needed to get started.
The person you choose to partner with might offer the money to you as a sort of loan with a fixed interest rate and perhaps a profit split of the capital appreciation after a 5 year period. As mentioned above, it is worth speaking with your mortgage broker about the structure of this before officially borrowing the funds from your JV partner.
There are a number of ways in which a joint venture can be arranged. Our advice in this situation is to always have a legally binding declaration of trust drawn up, no matter how close you might be, as security.
UK property investment
If you’re exploring your options for your next property investment or thinking about getting started as an investor and interest to learn more about where and what to buy please do get in touch.