Delving into the world of property investment might seem like an exclusive domain for the ultra-rich. However, contrary to popular belief, you don’t always need deep pockets to get started. There are various strategies that will make it much much easier for you to do a property deal without upfront capital. In this article, we will explore how you can fund a property purchase without using your own money.
Partnering with Investors
One effective method of property investment, especially for those short on initial capital, is to partner with investors who can provide the needed funds. What I have always done is worked with investors who lend money to my company at a fixed rate of interest – usually one that outperforms traditional bank returns. This investor-funded capital is then used to purchase properties, where we add value through various strategies such as refurbishments, redevelopment, or conversions.
Once the work has been done, we refinance at the higher value. The proceeds from the refinance are used to repay our investors. This method not only enables property purchases with no money down but also provides our investors with a profitable return on their investment.
Other No-Money-Down Strategies
There are several other creative strategies that can facilitate a property purchase without personal capital. These include:
1. Joint Venture Partnership
A typical JV partnership involves one person bringing the funds and the other executing the property deal. Both parties share the risks, profits, and losses (but hopefully not!) proportionally. Depending on how you negotiate the partnership, there will be no ongoing cost of the money that the JV partner brings.
2. Assisted Sale
In this strategy, whilst you still may need the funds to do the refurbishment, you won’t need to raise the funds to buy the property as you’ll never actually own it. Instead, you work with a property owner who may not have the funds to pay for a refurbishment, but has the desire to make more money from the sale of their property. You will both agree a base price, and any value that you add to that price will be split between you and the property owner equally upon sale of the property. You’ll need to make sure you have a robust contract in place before going down this road.
3. Lease Options
A lease option allows you to lease a property with the option to buy it at a later date. This strategy can be advantageous in a rising market, where the property value can increase over the lease period.
4. Exchange with Delayed Completion
This method involves signing a contract to purchase a property but delaying the completion date. In the meantime, you can improve the property to increase its value, making it easier to secure financing, and often at a higher level.
5. Vendor Financing
Here, the property seller acts as the lender. You agree to repay the seller in instalments, essentially paying off the purchase price over time.
6. Bridging Finance
Bridging loans are short-term finance options designed to bridge a gap in funding. They can be used to purchase a property quickly, before longer-term financing is secured.