How to raise finance for property investment

How much do you need to raise

When thinking about how to raise finance for property investment, you will have to consider not only the deposit, but all associated taxes and purchase fees. If you are refurbishing the property, you should factor in these costs too, plus a contingency.

Once you have calculated the amount you need to raise, you must make sure that the expected return on cash invested (ROCI) exceeds the cost of raising that finance, otherwise you will experience negative cash flow.

How to raise finance for property investment through loans

For the purposes of this article, we are assuming you are purchasing a property with a mortgage, and are looking for ways to raise capital for a deposit.

Borrowing the money is a common solution, and there are several different options to consider, including taking out a standard bank loan, remortgaging an existing property and borrowing from family or friends.

Taking out a bank loan is the simplest solution, in principle at least. Providing a lender is willing to approve a loan (i.e., you have a good enough credit rating and can meet all other loan conditions), all you need to do is ensure the interest rate is low enough to ensure you meet your profit goals.

Borrowing from family or friends is a valid alternative, but this can place a strain on relationships, especially if the property doesn’t turn the profit you expect. If you do accept a loan from someone you know, both of you should understand that this is a business arrangement, and take the necessary legal precautions.

If you have already started your property investment journey, and one or more houses in your portfolio have made capital gains, you can release that equity by remortgaging those properties. There will be a limit on how much you can borrow in that way, which is tied to the value of the properties concerned. If you intend to repay that mortgage with the profit on your new investment, be aware of any early repayment charges that may apply.

How to raise finance for property investment with no capital or credit history

So far, all of the finance-raising strategies we have discussed have relied on you, the property investor, coming up with the capital. But what if you have no means of accessing credit or securing a loan?

Two options to consider are joint ventures (JVs) and sourcing fees.

A JV is where you partner up with somebody else to jointly bring a project to fruition. In such an arrangement, it is common for one partner to provide the capital and the other to provide ‘sweat equity’ (i.e., they work for free). With any JV, it is important that a legal Declaration of Trust is signed by both parties. This will set out what each partner brings to the table and how any profits are divided. Your Declaration of Trust should spell out exactly what happens if results don’t meet your expectations – or exceed them.

If you need to know how to raise finance for property investment on your own, with no capital or means to secure it, another option is to source property for other investors. There are plenty of investors who don’t have the time, knowhow or passion to source lucrative property deals for themselves. They will often recruit a third party to do the leg work for them. A sourcing fee of around 2% of the property purchase fee is standard. You can then save this money towards a deposit of your own (while gaining experience in finding amazing deals!)

If you are interested in sourcing for an investor, you will need to become a property expert. This is where Fielding Financial can help.

How Fielding Financial can get you on the property investing ladder

However you decide to raise finance, it is important you enter the property market with your eyes wide open. While it is definitely possible to make a good living through property investing, rushing in without a sound understanding of how property works is a recipe for disaster.

For a couple of hours of your time, the property specialists at Fielding Financial can set you on the road to success, through one of our free property seminars. You will also find out about some special features we offer to help new investors to hit the ground running. These include our ‘buddy board’ and ‘deal swap’ schemes.

We run seminars frequently at towns and cities up and down the UK, so take a look at our current programme and book your place today.

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