Do you want to invest in property but lack the capital needed? Don’t be dismayed, here’s our top ways to drum up the cash needed.
Save, save, save!
It may not sound the most original of ideas, but it’s one of the most straightforward, controllable, predictable and risk averse.
Keep yourself on track by monitoring your spending so you’re aware of all your outgoings, then find ways to reduce it as far as you can. You’ll find you can save a lot by being shrewd about spending. For example, you could move somewhere smaller or cheaper to save on rent, cancel surplus costs such as Sky TV or gym membership.
You could also set up a regular direct debit from your wage to a savings account so you don’t see the money to spend in the first place. You may think it’s impossible, but it’s certainly not inconceivable that you can squeeze more from your money than you currently think. If property investment means a lot to you, be prepared to be uncomfortable for a while in order to make it real.
Use your time effectively while you're saving and read about property every day and make as many contacts in the industry as you can. It'll make you a better investor when the time comes, and it'll keep you motivated when your cost-saving initiatives begin to test you.
Rent Rooms In Your Home
A popular way to raise money on your own home is to rent out a spare room –the first £7,500 you receive is tax-free.
Websites such as Spareroom.co.uk, can help you find a lodger, or there may be international students who need somewhere to stay. You could even specify that you only want someone who'll stay Monday-Friday if you want some privacy at weekends. You’ll get higher returns by renting your room through a short-term lettings site like Airbnb, but this will require more work.
You’ll find you have to spend time corresponding with potential visitors, checking people in and out and dealing with cleaning on a regular basis, but the profits can be very high if you live in popular tourist area.
Borrow Against Your Own Home
If you have little in the way of cash, but lots of equity in your own home then it may be worth considering extending your mortgage to release the cash to invest elsewhere. Anxious if this is the right thing to do? It depends on whether you would rather start investing earlier or have the security of paying down your personal mortgage.
If you do decide to go down this route, consider the fact that some mortgage providers will be happy for you to borrow more against your house in order to invest in property, others won't – you'll need to check with your lender or broker.
It’s worth also noting that mortgages on your own home tend to be the cheapest debt you'll ever have, but it does mean that the property you buy will be effectively 100% mortgaged – so you'll have to check carefully that you'll be cashflow positive after repayments. Lastly your residential mortgage will be assessed based on your income, so you'll need to be able to show enough earnings to tap into that equity.
Start A Property Business
This idea is a little different but making money to plug your capital gap is not to be sniffed at.
It's unlikely to provide instant gratification, because it usually takes a couple of years to establish and make a reliable income. But if you've got the time and inclination to do it alongside your normal job, any profit you make is extra money that can all go towards your property investments.
A unique and related way of doing this could be to actually start a business in property. You could for instance start a property sourcing business, where you find discounted property deals and sell them on to other investors for a fee.
Of course it’s easier said than done and will involve lots of time and commitment, but if it does work you have the benefit of earning money, developing the same skills you'll need to invest yourself, and building your network at the same time.
Borrow A Deposit
You could consider borrowing money from a relative. This is difficult territory to navigate and is not generally advised due to the high stakes involved, however if you have a relative you know well and trust and you can provide them with a compelling business case and written contracts, there’s a chance it could work.
It’s worth a shot if you have those relationships to draw on.
Invest With Friends Or Family
One more difficult option to consider is investing with your family or friends, rather than borrowing. This option bears the caveat that it can be difficult maintaining relationships close while being financially involved together.
You’ll need to make sure you’re both completely in tune with what you want to achieve and have everything down in writing for it to carry any chance of success.