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Most of us run out of money at one time or another. More often than not it’s just as we’re settling into our stride lining up projects, having tenants settling in and progressing with developments. Yet property is a money hungry game. The more we have, the quicker we can seize opportunities and grow.
That’s why it’s smart to be aware of different sources of finance. Below, we’ve listed 10 easy and simple ways to fund your property investment that helped us too. (And don’t worry none of them involve rooting behind the back of your sofa or raiding the kids’ piggy bank).
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Refinance your home
Equity is one of the cheapest and easiest sources of funds available to you so it’s well worth checking if you have it. The first step is contacting your existing lender and asking about a further advance: an additional sum added to your existing mortgage. Many residential lenders offer this without the need to remortgage.
If it’s not an option, it’s wise to check when your mortgage is up for renewal. Still, if renewing your mortgage remains a distant dream, a second charge loan could be an option. This is a loan from another lender that’s secured against your home on a second charge basis. The higher risk means you pay more interest. But even at 8% annual interest, it’s still cheaper than a lot of private lenders.
Refinance your portfolio
Next, it’s time to think about the equity in any of your investment properties. It’s best to start with properties where the value has increased most since you bought them. Speak to your lender about further advances. Or, check with your broker about refinancing and second charge loans.
Refinancing property results in funds dropping straight in your bank account. That means you have the flexibility to spend the money as you like, whether that be on buying additional property or renovating existing ones.
Stick it on a credit card
As banks and solicitors don’t allow deposits to be paid using credit card debt, they’re ideal for paying other costs such as renovation works. You want a card with 0% interest. The best deals allow you to use the card for up to two years without any charge. Just make sure you pay off the card before the 0% offer ends or switch to another 0% deal. Otherwise, it’ll swiftly go from your cheapest to dearest debt.
Take out a personal loan
Like credit cards, personal loans are a cheap way to quickly borrow. Comparison sites such as moneysavingexpert are able to tell you where the best deals are. A quick search revealed loans ranging from £15,000 to £25,000, at an annual interest rate of less than 3%.
What’s more they’re typically unsecured to to £25,000 so you don’t need to worry about giving security of any other assets you own. It’s worth noting personal loans will show up on your credit score so if you’re considering applying for a mortgage use them with restraint.
Consider bridging finance
Bridging is a shorter term loan secured against a property. It’s similar to a mortgage insofar as it involves an application process and a valuation on the house. The big differences are that bridging is only intended to be used for around 12 months and it’s a lot more expensive at around 1% interest per month. The great advantage of bridging is that as long as you keep on top of the repayments, you’re pretty much free to use the funds as you wish.
Look into development finance
Often, you’ll be using bridging finance because the property needs major work and doesn’t qualify for traditional mortgages. Yet that major work won’t be cheap and sometimes bridging just won’t cover it. With development finance, banks will lend you not just on the value of the land or building, but on the gross development value (GDV).
Simply, if you buy a plot of land for £100,000 and it has planning permission to build 5 apartments worth £100,000 each , your GDV will be around £500,000. The % rates banks lend at varies, but a quick rule of thumb is around 60% of the GDV.
Make the move to Crowdfunding
If borrowing money requires treading carefully, borrowing money from another person requires exacting footing. That said, dealing with a person is usually easier than dealing with a bank. And if you know your deal inside out, have multiple exits in place and have the utmost confidence in your investor, then it could be an option.
Crowdfunding allow you to raise money from private individuals, whilst providing you with an unemotional appraisal on your deal from a 3rd party, who can say if the deal really does stack up. It also gives you the security of having the deal done under the umbrella of an FCA regulated company who will ensure all the legals and paperwork are in order.
Ask family and friends
A well timed loan from a relative has been the starting point for many of our past guests successes. A small boost from family and friends can go a long way if you’re willing to get your hands dirty and give up the Instagram lifestyle for a few years.
Maybe it’s your first couple of deposits and furniture packs for rent to rent deal or the first few months marketing budget for your new sourcing business. Just make sure whoever is lending you their life savings understands the risks.
Try out private loans
Private loans allow you to borrow a defined sum of money from an individual for an agreed interest rate. The duration could be fixed or ongoing. The interest rate is based on your own negotiations. The repayments can be monthly, annually, rolled up, or any other frequency to suit both parties. It’s a super flexible way to raise money, assuming you can find the investors.
Re-think joint ventures
We often think of a joint venture in property as something where one party brings the funds, and the other party brings the knowledge and expertise. However, you could have a successful joint venture between two parties who contribute equal amounts of cash, time and expertise.
Remember though, you’re getting involved with your investor for a long period of time, usually as joint shareholders of a limited company. You need to be comfortable working with them for years to come, and be able to trust them financially.
Dip into shares and pensions
Shares and pensions are an often overlooked and valuable source of funds. For anyone who’s been in a corporate job for any length of time, these could both be a lucrative source of finance, depending on when and how cost effectively you can access them.
Links & Resources
British Airways American Express – Get a credit card, travel the world in style!
MoneySavingExpert – Find the lowest cost loans and credit cards