I think it’s finally time I came out and said it. For some reason ever since I first borrowed money from an investor at 20% I felt a little embarrassed to talk about it.

Sure, people borrow money at these rates and higher all time for property deals and all other sorts of things, but something about the whole process made me want to keep it to myself.

Was I wrong to borrow money at such a high rate?
Was I wrong to borrow money at such a high rate?

Ever since I started the Inside Property Investing podcast I’ve tried to be transparent about things like renovation costs, rental income, difficulties I’ve faced and weaknesses I possess. I do this as I want to break through some of the smoke and mirrors in the property world about how easy or difficult the reality is and how much (or little) money other investors are actually making.

Still though, for whatever reason, I haven’t been shouting from the rooftops about my investments at 20% APR…. until now!

Why Borrow Money at Any Rate?

I guess the first thing to tackle for those of you reading this and wondering why on earth anyone would borrow any money from anyone to invest in something, is to answer why I did it.

I am a passionate property investor and have been investing for 10 years now, virtually since the day I turned 18. A few years back I decided to make the leap from part time property ‘dabbler’ to full time investor, meaning any money I made was no longer just a nice bonus on top of my income, it was now my only income!

Leaving my corporate career meant it was time to grow my wealth
Leaving my corporate career meant it was time to grow my wealth!

This was a liberating feeling, but it came with the realisation that I couldn’t do as many deals as I wanted to just with the money in my bank account – I needed to scale up, and in order to do that I needed leverage.

Leverage in the property world has been around since time began (give or take), in the form of mortgages and bridging loans, but that only goes so far. Start adding up deposits and development costs, factor in the time to buy, renovate and sell or refinance deals, and it’s a cash hungry industry.

The banks simply weren’t cutting it with their 75% Loan to Value loans, and so if I wanted to do a higher volume of property deals or be involved in larger developments, money needed to come from elsewhere.

How Was I Able to Raise Private Finance?

I had heard of other people borrowing money to grow their own portfolios, and other working with ‘joint venture’ partners, typically in the form of cash rich but time poor arm chair investors looking for a good return and some of the excitement that property investing brings with it.

What I didn’t know was how to find them, and I very much doubted I’d be the one to hunt them down. I was receiving support from a more seasoned investor at the time though who assured me it could be done, and not only that, it was actually quite easy once you know how. I wasn’t convinced, but thought I’d give it a go.

These were pre-podcast days, but I did have a small network through the letting agency who at least showed some interest and understanding around the perks of buying bricks and mortar rather than stocks and shares (or, heaven forbid, investing in their pension!). It turns out this small email list was all I needed.

Advert for our first buy to let event
Advert for our first buy to let event

I invited a number of prospective investors along to a free buy to let information evening at our offices and did my best to show off my limited knowledge whilst generally being encouraging about the merits of buy to lets, HMOs and flips. There was no request for money made just yet, I was simply warming them up and trying to gauge interest.

Step 2 was to go in for the kill, and being somewhat phone shy, I opted for an email blast. It’s probably worth mentioning at this stage that I still very much doubted that anyone would invest, and I was following the steps of my trusted advisor more to prove her wrong rather than actually thinking I’d end up with any money.

She advised offering an APR of 10% was a good starting point, making it promising enough to those with money earning them 1-2% in banks, and leaving a little room to negotiate on the terms if required. I should have listened to her advice, but as I mentioned I wanted to prove her wrong and in my stubbornness proclaimed to my better half that people wouldn’t even invest at double that.

I slammed away on the keyboard with the details of an HMO conversion I had secured, and wrote a couple of lines at the end about how we were looking to raise finance for the deal and would be offering any interested investors a 20% return on any funds they committed.

The smile widened on my face as a few minutes passed without any response, and I was looking forward to saying I told you so, but a strange thing happened over the next 24-48 hours. People actually started responding to the email and even (god-forbid) phoning me! By the end of the week I had 4 interested parties, 2 of whom turned out to be more than just tyre kickers and I still have the pleasure of working with them today.

Why Proceed at Such a High Rate?

If the email was sent with the intention of proving my advisor wrong, why did I still go ahead with the investors who came forward? It’s a fair question, but there are a couple of reasons that I want to touch upon:

1) I like to stick to my promises – this was a big driving force for me. I’d told people I could borrow their money and give them a 20% return. They’d taken the time to investigate me, consider the deal on the table and still wanted to proceed. I wasn’t going to go back on my word having come this far.

2) I still made plenty of money – 20% sounds like a lot of money to pay for finance (especially when mortgages and bank finance are so cheap), but I knew the deal in question was a great opportunity for me to make a lot of money, so proceeding with the investors at 20% worked out for me as well. I’d far rather have 50% of something than 100% of nothing, and in this case I was able to purchase and develop an HMO that now makes me ~£1,500 net profit per month. The investors got their few thousand pounds out of it as promised, and I have a long term cash flow simply for investing my time in to it.

3) I was thinking about the long term – for me that email wasn’t about raising money for one deal, it was about stepping up to the next level in my own investing journey so that my long term rewards would continue to escalate. Had I not sent the email and borrowed the money, I would still be sitting here today doubting that it was possible, and wondering how many more times I could refinance my buy to lets in order to afford the next flip. As it stands, I’m now confident enough that raising private funds is possible that I have gone on to raise over £500,000 in the last 12 months, and at much more favourable rates to me. I needed the confidence to proceed, and an email offering 20% APR was the catalyst for me.

For me the 20% was irrelevant, as long as I was building good relationships for the long term
For me the 20% was irrelevant, as long as I was building good relationships for the long term

It’s certainly been an interesting couple of years since I left the corporate world, and I now believe those who say that if you find the right deal, the money will follow. I still wouldn’t go so far as to say it’s easy, but it’s certainly possible.

I’m now looking at a couple of development deals, having recently purchased an office that’s being converted into an 11 bedroom HMO with a JV partner who is investing in excess of £300,000. The development deals will be a step up again, turning commercial buildings into apartments, and private finance will be playing a huge part in making that a reality.

There will continue to be a shortage of housing in the UK for many years to come, and as long as I’m able to find the right opportunities, there will be people who have an interest in investing. The best part is, now that I know it’s possible, I don’t need to offer 20% more either. It’s still a great return for our investors, but it’s even better for me now!

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