How to Buy Property with No Money Down
Financing your property investments can be a large and scary task that when you think about it could stop you from starting to invest. If you don’t have your own money to invest then this can seem like an impossible task. At Fielding Financial we have developed a cash clock which has 12 different ways to raise finance. You can use these to raise capital to buy property with no money down.
Most people nowadays have a credit card, but unfortunately many don’t know how to use them correctly. Here are some tips on using your credit card:
- Always check your interest rate and credit limit to see if you are getting the best deal. You can do this simply by calling the number on the back of your card.
- Check your credit score regularly. You can do this though free companies like ‘Experian’ or ‘Clearscore’, but if you would like to see more information and also data from all 4 of the credit agencies then you could use something like ‘checkmyfile’.
- Try to increase your credit score. Increasing your credit score can lead you to getting better deals on mortgages. Credit card companies like to see that you are reliable with your spending. You can raise your score in many ways such as spending some of your credit limit but making sure to pay it back before the allotted time is up. You can also do this by being able to use different types of credit and making the payments on time.
- Shop around for other credit cards as they can come with different rewards just for using them. You can earn points for each pound spent, which can later be exchanged for shopping vouchers, or you could find a card with 0% interest.
What is equity?
This is the amount of money that you put into a property. This amount will go up over time as you continue to pay off your mortgage and the market value of the property increases. Simply put, it is how much money would be yours if you sold the property and paid off the mortgage.
If the property value has risen, you can also refinance your property, where you can take out the money difference between the existing mortgage and the new. A property value could rise from the growth of the market, or if you have added value to it.
With this method when you have this equity you can use this to buy the deposit on a property investment. Meaning that you would have bought the property with no money down.
What is negative equity?
These are the words that no one investing in a property wants to hear. Negative equity is where the value of your property falls below the value of the mortgage you have taken out to purchase the property. It essentially means, if you sell the property, you wouldn’t make enough to repay the mortgage.
Sourcing Property Deals
Property sourcing can be a great way to start to raise some capital for your investments. Sourcing is where you find a property that achieves a high return on investment, that you package to be sold to an investor and charge a sourcing fee.
Sourcing can be a good way to generate an additional income for an already active investor. This is because when they are looking for deals for their own property business, they are likely to come across deals that don’t suit their strategy, that would achieve a good return for another investor. These investors can package the deals that they are not going to use and sell them for profit.
A loan is where you borrow a set amount of money, at a set interest rate and pay it back within a certain amount of time. How much you will be able to borrow depends on various criteria, such as your credit score and the loan term. This is also true for the interest rate.
Loans can be great for property investors to get a lump sum of money to fund your deals or refurbishment. Loans typically have a lower interest rate than a credit card. The reason that they are normally lower is because the lender takes less risk by agreeing other ways of receiving money if the borrower fails (can be personal assets).
You can also pay off these loans by raising the finance with other methods mentioned in the cash clock meaning that you will have used none of your own money.
Early pension release is when you unlock your pension. The minimum age for this is 55 (changing to 57 in 2028) unless you meet a certain criteria. When you reach 55 years old you can take out 25% of your pension (either in a lump sum or in small sums that add up to the 25%) tax free. After this 25%, you will have to pay tax. If you decide that you are going to release all your pension, be mindful as this can push you into a higher tax band.
You can release your pension before you are 55 but only if you meet a certain criteria.
An angel investor is someone who gives you a sum of money to help your property investing business. Normally in this type of deal you ask for a certain amount of money from the angel and agree to pay them interest on their money monthly or annually.
Angel investors come in all shapes and sizes from family members, co-workers, or even a past investor. Having so many options to raise capital is an incredible opportunity and is great for new starters who do not have a lot of money to make no money down deals.
Vendor financing is a creative way to buy a property with no money down. This is where the seller helps you to buy the property. You can do this in a few ways.
- If the property owner has a mortgage on the property, then you will have to gain the capital from somewhere else to pay off the mortgage or as much as you can. You will then pay monthly instalments. Then you add value to the property and in 6 months re-mortgage and pay the vendor back.
- If a vendor has paid off their mortgage in full, they could transfer the asset over to you with a first charge. A first charge means that if you don’t pay the monthly instalments, they can take the property back. When you have the asset you would try to add value to it so that in 6 months you can take out a mortgage and pay back the vendor. The property is now yours.
- The third way is that they will give you the deposit for the property which you will have to pay back. This does mean that you have purchased the property with none of your own money.
A lease option agreement is a good way to buy a property with no money down and is normally when there is a motivated seller in negative equity. If this is the case, then a lease option agreement might be right for them and you.
This is also a great strategy for purchasing a potential development opportunity and allows you to agree to buy the property subject to planning permission being granted.
Crowd funding can be a great way to raise funds for a property deal. Crowdfunding allows you to take out a loan for a property, then other lenders will pay parts of for a return on their money. So if you find the deal and gather the right people to pay the loan, then you will have successfully bought the property with no money.
These are very common in the world of property investing because it is a very diverse method. A joint venture is when you find one or more partner to combine resources or skills for a project.
There are different ways that a joint venture partnership can work:
- You find and manage the project and the other joint venture partner funds the project for a split of the profit.
- The second way to do this is if you find the project and manage the construction, again the other partner will pay for the whole project. In return however you will give them a 10% annual rate of interest on their money.
The incredible part of a joint venture is that you do not need to have any of your own money to be involved with one. If you have a skill that the other partner/s want, then you can play a crucial part in the process and receive a good return.
Rent to Rent
The rent-to-rent strategy is where you rent a property from a landlord and then rent it out yourself to a tenant for a higher rate. This strategy generates a good profit, but you generally don’t own the asset, unless negotiated with the property owner.
A bridging loan is another good way to fund your property investments and is a particularly popular strategy for properties which are unmortgage able or have been sold via auction.
Bridging loans normally have high interest rates, so paying it back fast is recommended.
Now that you understand some different options for financing your property investments, we hope that you see that there are multiple ways to purchase property with no money. If you are willing to work hard enough and get creative, then you can achieve your goals.
If you want to learn more about how to buy property with no money down, tune into our Property Investors Education Summit on Tuesday 16th July where Jamie Barnett and Kerry Beckingsale will be talking about financing your property investments.