Here are some ideas for where your funds can come from…
Savings
This is the easiest one, but often the one that gets used up first! If you’re serious about getting into property then you really do need to think about how you can save money from your day-to-day expenses to create funds for it.
Especially for your first project when the lender wants to see you’re using your own funds. Look at a budget planner, find a savings account that encourages monthly savings, and go from there. There may be some sacrifices that need to be made!!
Refinance of your Residential or Other Property
Refinancing your residential property can be seen as risky by some, but you are moving the equity from one property to another.
Remember that your home may be at risk if you do not keep up repayments on it, so look at the overall picture. It’s an idea to explore though.
Gifts
Often when investors are looking for investor funds, family and friends are first on the list. It’s an easier sell, but comes with more pressure! Gifts from family are easier to use for your first few projects (before you build up some experience) and it counts as your own money!
Joint Ventures
This is an alternative where you are relying on the experience of someone else. It means your JV partner has more security over their funds and equally, you have more support for the project. You are able to split the shareholding to reflect the funds and experience of all applicants too, so it’s flexible.
One thing to remember is that generally, all applicants to the mortgage will need to sign a personal guarantee to be jointly and severally responsible for the loan, so ensure that your JV partner is happy with that setup.
Company Loans
Something we are seeing more of is where clients have a (non-property) company that is profitable and they want to use these funds to put into the property.
It is a tax-efficient way of doing things, but ensure to check with your accountant.
Investor Funds
Once you’ve built up a track record of projects – usually one or two similar-sized projects – you can move on to using other people’s funds!
Loans are an option where you run out of your own money, but ensure you factor in the overall costs.
Most lenders will now be able to use investor loans where there is a loan agreement in place and no charge on the security property. There needs to be a clear replacement method and any interest payments need to be taken into account so bear that in mind.
With the right strategy, you will be able to recycle some of your funds, so you’re not starting from scratch with each project – although “no money left” deals are hard to come across at the moment!