It’s the $64,000 question when starting out in property investment. How do I raise the finance to begin? If you are starting from the privileged perspective of having a good chunk of capital or you are able to release equity from a property to work with when you begin to buy property then that is great. It makes the process much easier from many angles. It gives you the confidence to know that any offer you make is backed up by funds in the bank and therefore offers you greater bargaining power. Coupled with the right knowledge and guidance, it also means that you can start your search sooner rather than later and get going on your chosen strategy.
Starting from scratch?
If, however, you are starting from scratch, then things can be altogether different. In my opinion it all depends on your mindset. If you are truly open to the idea that money is easy to come by and you learn how to ‘find it’ by networking in the right places and knowing what you are talking about (by getting the right education yourself!), then you stand half a chance of raising the money you will need to get going. If, however, you believe that money is hard to come by and you lack confidence in what you are doing, then you will most likely find it very hard to raise funds and gain peoples’ trust to invest in or with you. At the end of the day, you must really ask yourself why you are thinking of investing.
If it is purely a monetary exercise, then you may well struggle to pull it off. If, on the other hand, you are passionate about property and have the will and desire to do well, then there is every chance that you will attract the right sort of people and circumstances to you. I have worked with clients who have started from ‘ground zero’ and done very well for themselves just by going out there and putting in the right kind of activity in the right places. You must first be honest with yourself to work out whether property is right for you right now. If you have doubts or fears, you must either work through these or leave it for another time when you are coming from a more solid ‘internal’ foundation.
Raising Finance
This is all very well, I hear you say, but how about the practical aspect of all of this? How can you actually raise finance in the face of ‘not having any’? Well…first off it would be a good idea to check your credit rating and mortgage status. Speaking to a mortgage broker who specialises in lending for investment purposes about your ability to raise a mortgage would be a good place to start to see if you’re at least in the running in this sense. Regarding raising finance for the deposit or to buy outright, this can be a tricky subject. There are a number of ways in which you could pull money together and I have listed them below:
- Borrow money from relatives or very close friends
- Borrow money (in the form of a loan) from friends or acquaintances
- Raise Bridging Finance (in a number of different ways)
- Credit Card (short term)
- Bank Loan
- Angel Investor/High Net Worth Individual/Sophisticated Investor
- Vendor Finance (in certain circumstances)
Do the numbers work?
Please note that there are strict guidelines around borrowing money on a JV (Joint Venture) basis. I will go more in depth about this in my next article. The question to be raised at this point is whether the borrowing is right for all parties concerned? Does everyone know what they are getting themselves into when considering each of these options as a possibility? For example, whichever idea you use, you need to be incredibly careful about whether the numbers work. If you are considering borrowing on a credit card or loan, then keep in mind that this could negatively impact your credit score when you come to refinance.
If you base your numbers on the worst case scenario and the deal still stacks up, then that’s a good start. Whatever you do, proceed with care and with caution. Do not take unnecessary risks and treat all funds as if they were your own. In my experience, most people are happy to do business with people who can prove the viability of a project, have experience at least in sourcing good deals and ideally who have a proven track-record of making money in this arena. Getting the right education before you begin is a must. One wrong move and it could cost you…and anyone else involved…a small fortune. This does not rule you out if you are starting from scratch but I would be lying if I said this route was easy!
– What are the specific financing options for different types of property investment?
When considering property investment types briefing, it’s important to understand the financing options available. For residential properties, options include traditional mortgages or FHA loans. Commercial real estate may require a different approach, such as commercial mortgages or SBA loans. Researching the best option for your specific investment is crucial.
Next Article – New FCA rules around JVs
As briefly mentioned above, watch out for my next article which covers the new FCA (Financial Conduct Authority) rules around JV (Joint Venture) partnerships.
Wishing you every success in your property endeavours.
Hazel de Kloe – Why Property Works
If you wish to contact Hazel please email hazel@justdoproperty.co.uk
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