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.
- No Money Down Property Investing in a nutshell
- No Money Down challenge: how to get a property deal using little or none of your own money
The reality is that it is harder to get conventional finance, banks are tightening their criteria (following the Mortgage Market Review), loopholes are being plugged, and “creativity”, is not being rewarded by the institutions.
Relying on ‘conventional,’ high street, ‘sausage machine’ finance is not the answer.
But What’s The Truth With ‘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.
But Here’s The Thing With ‘Non-Regular’ Finance:
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
I think the best, most effective and realistically achievable strategy is a simple personal loan. Relatively unaffected by new FCA (Financial Conduct Authority) regs, clean, simple, understood by most, security against the property is safe and obvious, and when compared directly against bank – the interest rates look great to the investor.
You See, Much Of The Lending Is Made Of Experience And Track Record.
But this is only part of the picture. Many personal financer’s invest in a ‘person,’ not a track record directly, otherwise the ‘start up,’ world wouldn’t exist. In many professional lending circles investors like people to have gone bust once or twice, or to have had failed ventures; apparently making them lower risk/more lendworthy.
Many of my professional VC friends have taught me that their world/criteria is often opposite to what the newbie/borrower perceives.
It’s also often much easier for an investor to borrow through a non/unsophisticated investor (friends, family, self employed, solopreneur) on a straight loan agreement.
Certainly less overwhelming and complicated through the platforms and in the experienced world of money lending (P2P, VC, bridging, etc).
Non sophisticated investors are often more trusting/trust based and less contractually minded. Of course the FCA are trying to protect these people, and the obvious responsibilities stated above are important to make great partnerships, but from a (new) investors point of view this is by far the easiest place to start.
You’ll Get More Flexible Terms.
They’ll be more forgiving to market changes, and if challenges/changes arise [which they always do], you can talk to a real person and you can come up with solutions.
The Progressive Property Community members are regularly borrowing between 5% and 8% a year on a personal loan; a fair rate for both parties. Great for a private lender who doesn’t understand the property world and is comparing interest to the banks, and affordable to the investor who can plausibly pay this out of the deal and not out of their own pocket.
The loan is secured on the property in question, and the investment is likely to be almost as safe as if it was in the bank, except they will probably be making 5 to 10 times the return.
Added to this you have full control, you can be left to do the deal yourself and not have partners who have part of the cake trying to control how the deal is structured and managed.
It’s least likely to go wrong, and then when you’ve done one deal like this it opens the door to more money or many other Joint Venture structures.
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.
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.
Wild disagreements, experiences, and your point of view welcome in the comments below 🙂
Invest for Freedom, Choice and Profit,
Rob Moore & Mark Homer