There are a number of misconceptions in the UK property investment world about the rent-to-rent concept, even from professional estate agents who’s first reaction is often that it’s illegal to sublet – illustrating that they’ve missed the point of what you’re asking. This is a shame, as the concept is a real opportunity for investors to gain a residual income from property without actually owning one.
If you’ve ever put any time or effort into researching the ins and outs of property investment, you’ll likely have come across the notion of getting into the property market without using any of your own capital. And whilst this may seem either a little fanciful or improbable to some, there are a number of ways that it can be done, meaning that you don’t have to have a vast pot of savings at your disposal to get involved.
Interested? Well, we think you should be and with that in mind, we now look at the three of the main avenues you can take to do so. The one that’s right for you will depend largely on your personal circumstances and your intended exit strategy.
Why would you want to do No Money Down investing?
People get stuck in property. They have an idea of what they want to do. But they have a common problem. And the common problem, is, knowing what you want to do, but not having the money to do it. They don’t have the funds. And this is where most people actually get stuck.
They get stuck, because they know what they want to do. They know the strategy they want to do. They want to do single-lets. They want to do HMOs (houses of multiple occupation). Or, they want to do serviced accommodation. Or maybe, they want to do a commercial deal, or a commercial conversion, where you convert a commercial deal into a residential. Or, a buy-to-flip so buy, refurbish and sell.
The actual reality, is that, they’re not really a successful property investors, if they haven’t more than 40, 50, 60 plus houses. They’ve not done that, exchanging time for money in a job, saving up deposits. And I see people who’re struggling in property, and what they do, is, they’re spending their time working in a job, trying to scrimp and save every few pennies they can to get together, to try and save up a deposit, the 20-25 percent that they need to buy a house.
The problem with that approach, is, it’s just too slow. Over Time Add Additional Finance Raising Strategies To Your Overall Strategy, And Think Outside The Conventional ‘Off The Shelf’ Products.
The power of compounding will really kick in which will allow you to build your property portfolio in a shorter period of time with minimal risk and capital from you.
This will increase your buying power, reduce the time it takes to build your portfolio and wealth and reduce your risks significantly in many cases.
BUT. By the time, you’ve saved up a deposit to buy your first house, you could have 6 months, a year, 2 years, 5 years passed by, depending on what you can save per month with your income potential. If you don’t even able to save enough of a deposit to buy one every 5 years, you’ve got to end up after 20 years with 4 properties. You are going to run out of life, before you’ve ever created enough income.
The secret is that you don’t need to save for years, you just need to know the right finance strategies and the right people and deviate from the ‘rigid set of rules’ associated with standard conventional finance.
The only way to create a big scalable property business, is, looking at No Money Down investment techniques. There are lots of different, what I called, tools in your toolbox that you can use for No Money Down property deals. You can do stuff like, lease options. You can do stuff like, assisted sales, like exchange delayed completions, rent-to-rent, or rent-to-own, or vendor finance.
Every smart investor knows that there is an unparalleled contrarian opportunity to buy assets cheap, get higher cashflow and returns, and have less competition in the process.
But contrarian, by definition, means the opposite of the masses. It means most people don’t know this.
Buying Property using Creative Or Non-Standard Property Financing
You see, when a new finance vehicle enters the market, it often seems to be the new solution, though it’s most often less liquid until investors understand it properly.
There are more obstacles, and so it’s more difficult to obtain. And there are usually some sweet spots, halfway between creativity and liquidity.
In reality it usually just means getting more ‘personal’ with finance. Repackaging and restructuring deals to look good to ‘private’ investors and creating partnerships with non standard lenders.
Although newer than person loans, sites like crowdfunder in property can provide a good injection of seed money for investors and can often give more favourable terms than other lenders.
We recently just raised £150k as a test on funding circle and you can get this with no security though you’ll need squeaky clean business accounts and at least three good years of trading history.
And most people who need quick creative finance don’t get to or can’t meet that criteria, which provides more opportunity for the savvy–smart property investor.
Peer-to-peer property lending is also relevant right in this economy. We’ve loaned and raised finance from websites like Zopa and it can be more bespoke depending on the criteria of the individual (private) lender. The Entrepreneurs are now becoming the new bank.
Bridging Property Financing can be a short-term option though we often get quite shocked at how much investors are prepared to pay for bridging just because they want quick finance; sometimes when worked is over 3% a month. Very dangerous unless very short term.
But if and when it goes wrong, they’ll apply more pressure. You’ll feel like you’ve borrowed from a bank. They’ll have some nice tight security, and you won’t mess them about.
But the money will flow
The different tools – they’re not strategies. They are tools. You see, you can use a lease option to do a property that you then rent it out as an SA (serviced accommodation), or a lease option on the property that you rent as an HMO, or a lease option on a property that you rented as a single-let.
The biggest challenge for new investors with low funds getting into those high cashflowing HMO’s (multi-lets) is the amount of cash they need. What if you could have a 5-8 bed multi-let churning out £500 – £1500 a month with no deposit or high refurb/regulation costs?
Well Rent to Rent (also know as corporate letting, ‘managing’, let to rent), is an innovative strategy of renting from a landlord on a single let, and then renting out the house room by room.
Your landlord gets their rent, and you get a margin on the multi room letting. No purchase necessary.
Buying Property using Joint Venture (JV) finance
Every deal is a ‘no money down’ deal with other people’s money. A wealthy person who’s busy, a business angel or dragon, a family member with savings or a future inheritance can all lend money which can be legally secured against a property that you can use as a straight loan or as a Joint Venture (JV) share, depending on investor type.
You part, half or fully own properties leveraging other people’s idle cash. You do all the work (sourcing, letting, managing), they do all the financing. With low interest rates, poor historical pension performance, new pension laws relaxed and volatile stock market, mixed with media hype about the property boom, property is a place where many people want to invest their money.
But most people don’t have the time or the know-how.
You find a good deal, your JV partner lends to you with a profit/ownership share (if they’re a high net worth/sophisticated investor), or they simply lend you money, both secured on the property. Whether rent-to-rent is right or wrong for you can come down to your own individual circumstances and each case should be judged on its merits, but those who see it as overly-complicated and more trouble than its worth, would seem to be somewhat wide of the mark.
All that’s needed is thorough research of the local area, time and effort to find the ideal property and a well-structured, accurate financial plan to ensure your travails won’t end up with no profit. As long as you understand what you’re getting into and you’re completely honest and transparent with the landlord, the rent-to-rent model is one that certainly holds water and one we wouldn’t dismiss out of hand.
The main takeaway from what we’ve spoken about here is that even with little to no capital behind you and even a poor credit status, it’s possible to make a living from property. It’s just a matter of getting creative, thinking between the lines and taking one or two educated risks.
The profits are out there, you just need to go out there and grab them.