Those considering investing in property often ask ‘How can I invest in property with little money?’ It’s a common misconception that only very wealthy people are able to invest in property.
Whilst the internet is filled with suggestions on how to invest in property with very little money but it’s unlikely these opportunities are quite what a new investor envisaged when they thought about investing in property.
From property fund schemes to the suggestion of rent-to-rent, you can invest in property in various ways with very small sums of money but you don’t own the property outright yourself and you likely won’t have much control.
If you’re hoping to invest in property and would like to do so by using only a little money this article will share top tips and insight on how to build a property portfolio with only a small amount of cash.
How to raise enough money to invest in real estate
If you’re wondering how to raise enough money to invest in real estate we have a few pointers and ideas to share to help you reach your goal:
Perhaps the most obvious way to raise enough money to invest in real estate – save until you have enough money to invest in real estate.
Short term compromise on luxuries can quickly amount to enough to invest in real estate, here are a few ways you can cut costs and build a savings pot.
- If you’re renting your home consider moving to a cheaper area or smaller property, shaving a few hundred pounds off your rent could quickly build a healthy savings account.
- Minimise other fixed outgoings – do you really need Netflix, Sky and Amazon Prime or could you reduce this to just one? Is your gym the most cost effective local place to work out or are there other options?
- Sacrifice luxuries where you can. Holidays, take outs, eating out, new clothes and shoes – these things can usually all be sacrificed in the short term. We’re big advocates of living the good life but with a view to bettering your life for the long term, it can be well worth it.
- Review day to day spending. £2.50 per day on a coffee might seem like an insignificant amount but if you eliminate that daily coffee outgoing in just a few months you’ll have saved hundreds of pounds.
- Move money into a savings account before you’re able to spend it! Many make the mistake of trying to save what’s leftover at the end of the month. The key is to move the amount you’d like to save straight into a savings account as soon as it hits your main account. This way you’re less likely to spend it as it’s not easily available to spend.
- Bring in additional income. Whether you have a talent for crafting or knitting or have a skill that you could charge for tutoring or freelancing it’s often possible to bring in additional income on top of your salary.
- Borrow the money
Some investors claim to have started their empire by borrowing money for a deposit via a cash advance on a credit card. Interest rates on credit cards are usually high and even if there is a grace period in the beginning when you do a balance transfer and withdraw the case, the high interest rates will return at some point.
It is sometimes the case that a relative or friend is willing to loan the money should you put forward a compelling case. New investors often explore property investment after being given inheritance early.
- Invest with others
Instead of borrowing money from a friend or relative, you could explore whether this would work for you. Be wary of the relationship being put under strain due to the magnitude of decisions that will need to be made, so ensure your goals are completely aligned.
The best advice for taking this route is to get everything down in writing. Decide in advance how you’ll invest, explore things that could go wrong and how you’d handle certain scenarios and what would happen if one person wants to exit the agreement and sell.
- Borrow against your home
Do you own your existing home? It’s very possible that you might be sat on equity in your home.
In most cases, you can choose to release some of the equity in your main home in order to buy an investment property.
There are a few points to keep in mind should you pursue this option:
- Changes to your residential mortgage will be considered based on your income so you’ll be required to demonstrate enough earnings to cover the mortgage after you’ve released some of the equity.
- Not all mortgage lenders will be happy to release equity in order to purchase a buy-to-let investment, your lender or mortgage broker will be able to assist you in ascertaining whether your existing mortgage will allow for the equity release.
- If you choose this route it effectively means that the buy-to-let property will be 100% mortgaged so you’ll need to factor the additional cost on your existing residential mortgage into your cash flow calculations.
- Rent out your spare room/drive/garage
Do you own your home and have spare rooms that you could rent out to a lodger?
Homeowners can use sites such as Spareroom for lets on a longer term, you can even dictate if you only want someone to stay Monday to Friday, though it might take a little longer to find someone who’s looking for that type of arrangement.
Taking advantage of the Rent a Room Scheme allows you to earn up to £7,500 a year tax-free. The tax free allowance changes if you share this income with another so it’s best to take advice from your accountant.
Homeowners might also want to consider letting out their garage space if it is currently an underused space that you could live without. Similarly, if you have space on your driveway and live near to a train station you might be able to rent a parking space on your drive.
The Rent a Room Scheme only apple to letting our furnished accommodation so discuss with a professional how to manage additional income.
How much money do you need to invest in property UK?
Property prices in the UK vary wildly depending on where and what you buy. Investment opportunities that we explore on the behalf of our investors include student accommodation with price tags under £100,000.
The route to owning an investment property that will require the least amount of cash is to obtain a mortgage.
In the UK, the typical deposit required for a buy-to-let mortgage is 25% of the property’s full price. For example, if a property is £100,000 you’ll need a cash deposit of around £25,000.
Investors will often come to us having inherited a sum of money or landing a bonus that they’d like to put to good use. We’ve previously explored the best ways to invest £50,000 in property and how to best invest £100,000 in property, both articles are online and available to read.
There are costs associated with buying property in the UK that investors should be aware of including Stamp Duty Land Tax, though during 2021 there is a temporary reduction in the applicable rates. Investors will also need to pay for the legal work necessary to complete the purchase.
Investing in property for beginners – 3 top tips
- Plan plan plan
Whilst nobody has a crystal ball as to exactly what is going to happen over the next few years with careful consideration of the facts available, historic data, the regeneration projects in the pipeline and economic and population trends, investors can make calculated decisions on where and what to buy. And furthermore, with insight, investors can secure investments at the most opportune moments.
A plan, be it over a 5 year period or even 10 years allows investors to have goals and minimum targets that allow them to focus on only those opportunities which will work in line with their plans. It also allows an investor to track success over time to assess what is working.
We’re big advocates of having a diverse portfolio. Not only does diversifying mitigate the risk involved with property investment but it also maximises the potential for success. The saying ‘Don’t have all your eggs in one basket’ is very valid when it comes to property investment.
- Take it slow
Property investment isn’t a race, it’s a long-term strategy for success. Rushing into transactions without all the details can leave you exposed to risk unnecessarily. Do your research, carefully consider the merits of each opportunity and make sure you have all the information you need.
Access 2024 UK Buy-to-Let Property Investment Guide
How to invest in property successfully
Our number 1 tip for those asking how to invest in property successfully is ‘diversify’.
By diverse portfolio, we mean having a collection of properties that are in various locations suited to the strongest tenant profile in that area.
For example, a small diverse portfolio might include one property in an established city centre location that’ll be perfect for professional tenants, a second property might be a student property in a prime student city and the third in an up and coming tertiary town that has excellent transport connections to the nearby city.
Over a 5 year period, property 1, in the established location, will see steady capital growth and a solid rental return, property 2 perhaps a slower rate of capital growth but achieve a higher yield as is typical for well-bought student accommodation. The third property might see the strongest capital appreciation and in some cases achieve the highest yield, the third location might also be a little slower to get off the mark with low growth figures for the first few years and then suddenly see its popularity soar due to new infrastructure or, as we’re seeing at the moment, a shift in tenant priorities.
An investor might foolishly think that having just one type of investment, such as three of Property 1 is the safest option, but that will limit the potential profit. Equally having three of the type of property similar to the third investment can be riskier or require a longer-term view. Having a diverse portfolio of buy-to-let properties in various locations not only maximises the potential for success it also lowers the level of risk.
How can I make a lot of money in real estate?
There is no get rich quick scheme, don’t believe anyone who tries to sell you anything that suggests there is some secret to becoming an overnight success in property investing. They might talk about property flipping, sub-lets, cheap development opportunities… there are many ways to put money into property with the intention of making a profit. Few individuals, who’ve had lady luck on their side, will tell tales of making money in record time but these often unrealistic strategies will rely on many factors going in their favour in order to get the desired windfall – the risk is high.
With a more level head and strategy in place the best way to maximise your returns and make a lot of money in real estate investing – leveraging.
Property leverage is when an investor uses borrowed money (a mortgage) to purchase a property instead of entirely purchasing with cash. Using rough figures, a typical buy-to-let mortgage will require a 25% cash injection and the remaining 75% of the property value will be funded using the mortgage. Over a 5 year period, the property will increase in value, the mortgage amount stays the same, whatever capital growth the property has enjoyed will go to the investor in full. Whilst there will be interest payable on the mortgage loan, the rental income being generated should cover the mortgage payments.
Say the property was originally purchased for £100,000, meaning the investor put in £25,000 capital and the loan was £75,000. In 5 years the property value increased to £125,000 – the investor has made a £25,000 profit in capital growth.
Many investors at this point will decide to pull out the new additional equity that is sat in the property (the £25,000 profit) and use this to buy another investment property. Growing their portfolio without the need for another large cash injection, only requiring payment of associated costs.
The investor now owns two properties both bringing in regular income and building capital growth.
Starting a property investment portfolio with little money
It’s very possible to start a property investment portfolio with little money and create considerable wealth over time. The first purchase you make will have a large sway on your success and ability to build a portfolio so during the time in which you are saving its always a good idea to brush up on your knowledge of property investment and take a closer look at locations across the country so that when you’re financially ready you’re armed with the facts to make a strong first step.
As investors ourselves we’ve learnt a lot on each of our journeys and enjoy sharing the knowledge we’ve built over time with the investors who work with Thirlmere Deacon. To learn more about property investment in the UK and how a professional consultant can help you start and build a property portfolio please do get in touch.