Have you explored all the options to fund your property investment journey?
We have covered funding options to build your portfolio before as well. So here are the three parts for you to go through on all available funding opportunities.
- Part 1: 4 Creative Options To Raise Finance And Build Your Portfolio
- Part 2: 3 Property Funding Options To Accelerate Building Your Portfolio
- Part 3: 3 Further Ways To Fund Your Property That Not Many Use (This Post)
In this post, we will discuss a few other options of investing in property by little or no money from your pocket.
1) Shared ownership
It is becoming a popular option for first-time buyers to purchase property with shared ownership.
Shared ownership is one of the government initiatives to help you fund your property.
You could buy 25% of the share and pay rent on the rest.
Yey, let’s buy properties.
Hold on; Shared ownership is generally for:
- First-time buyer
- You used to own a home, but can’t afford to buy now
- You’re an existing shared owner
How does it work?
Instead of paying a deposit on the full amount, you are required to pay a deposit on 25% of the total value of the property and pay rent on the rest of the property.
Properties that are bought under this shared ownership scheme are generally newly built properties.
- You need to find the mortgage lenders who lend on shared ownership.
- Make sure you check the rules of the housing association, and you are comfortable living there.
- More importantly, talk to shared ownership residents in the housing association and learn from their experiences
- Enable you to get to the property ladder with less money.
- You can increase your percentage later on.
- If the property value increases, you
- You would own only a percentage of the property.
- You will need to pay the full-service charge and rent on the properties.
- Restricted only to the areas where shared ownership properties are available
- If rent is not paid on time, you may be evicted and lose all the money.
There are other options like Help to Buy equity loan or Help to Buy ISA.
Crowdfunding is a practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the internet.
Real Estate Crowdfunding is still in its early stages; every day, new crowdfunding platforms are coming to existing.
There are quite a few platforms some to fund any project and some specifically for the property.
Following is a list of few property-specific crowdfunding platforms:
How does it work?
As mentioned before, a large number of people invest small amounts of money through crowdfunding company.
Crowdfunding company invests in different types of properties e.g. residential properties, commercial properties, student blocks.
Returns to the investors can be based on the type of investment done.
- If it is debt-based, investors get the agreed interest payments.
- If it is equity-share, investors get the percentage share.
- What is the track record of the crowdfunding?
- Are there any hidden fees in the contract?
- Is the opportunity debt-based or equity-based?
- When and how would you receive your returns?
- Open to anyone who has small amounts of money to invest in property.
- Property investing without the hassle of tenants, no refurbishment to oversee etc.
- Returns could be based on the rise of the value of the property or if it an investment is made on fixed interest basis, you could earn interest
- Spread your risk.
- Investors may lose all the capital.
- No dividends and low liquidity
- You don’t own the property
Now is a good opportunity for people with good pension funds or savings to invest in something that gives more than traditional returns. This is further supported by the regulation change where 25% of pension funds can be taken out at the age of 55+.
We have an investor who used his Self-Administered Scheme (SSAS) pot to invest in our property business. SSAS administrator created the agreement based on a deal agreed between ourselves and the angel investor.
Self-Administered Scheme (SSAS) and a Self-Invested Personal Pension (SIPP) both can be used to invest in property.
- If you are using pension freedom, please check if there are any tax that you will have to pay.
- If using SIPP or SSAS please check that you are investing in commercial property.
- If you sell the property after buying it using pension, you don’t get capital gains tax.
- Any income that you get from the rent that goes into a pension is not taxed.
- The pension can be used to borrow money to purchase.
- You can lend to crowdfunding companies through pension and earn tax-free money if you get good returns.
- Withdrawing funds is not possible until you are 55. Also depending on the amount, you are withdrawing it may be taxable.
- There is always a risk of losing your pension fund if invested in wrong assets.
- If investing in property you will not have liquid funds. It is very important to plan around your near future financial needs.
There are different options for investors to invest in property. We would definitely recommend property due diligence in to be done before you invest and ensure that the option that you are using is on the right side of the law.
Please talk to your financial advisors and financial advisors to make sure that you are investing in the investments that makes money work for you.