How to get started in property investment when you don't have any money

Last updated: 3 April 2015. Get free updates of new posts here

Can you invest in property when you don’t have any money of your own? Your gut response to that question probably depends on when you came of property investing age.

If you started investing in the heady days of 2002-2008, you might find it an almost offensive notion that you might actually need money to invest. The current lack of self-cert loans and same-day remortgaging are a temporary aberration, and there must be a way around the letter of the law.

But if you were investing before or since that golden era, the opposite answer is obvious: how can it be ‘investing’ if you don’t put any of your own money in?

So let’s  put aside the fiendishly complicated and very dubious ‘no money down’ schemes that a few men in shiny suits are still trying to sell, and look at some legitimate ways to get started when you don’t have any money. Spoiler alert: none of them is a quick fix.

Save and wait

Let’s just get the not-really-answering-the-question answer out of the way first, shall we? Because it just so happens to be a pretty good option.

Radical as it sounds, you could always save up until you’ve got the money. After all, property is an investment: you’d not consider investing in shares, wine or vintage pornography without having any capital, so why should property be any different?

The good news is that the loan-to-value offered by lenders is finally coming down again – it’s likely that you’ll be able to put down just 20% of the property’s value and get a buy-to-let mortgage for the rest.

In most areas of the UK you can buy some kind of property for £100k. In London it’d be a one-bedroom flat; in Scotland it’d be…well, Scotland probably. So that means saving up £20k.

Sounds like a lot, but if you’re earning £24k and can save 1/3 of your income, it’ll only take 3 years.

Saving that much of your income might sound insane, but plenty of people do it:

  • Move to somewhere smaller or a cheaper area to save on rent
  • Use The Birdy to track what you spend day-to-day. I bet you can find £5 per day to cut out. That’s £1800 a year right there.
  • Earn more! Start a microbusiness to bring in an extra couple of hundred per month, whether that’s selling handcrafts on Etsy or doing the same as your day job on a freelance basis in the evenings
  • Cancel stuff! Sky TV can run to over £500 per year. A gym is easily £600
  • Set up a regular transfer to automatically transfer 1/3 of your wage to a savings account as soon as you get it. If the money’s not there, you can’t spend it

Depending on your situation it might be impossible, but it’s probably a lot more possible than you think. If property investment is important to you, be prepared to be uncomfortable for a while in order to make it real.

While you’re saving, read about property every day and meet as many people as you can. It’ll make you a better investor when you’re ready to start, and it’ll keep you motivated through all those sportless (no Sky), flabby (no gym) winter nights in Grimsby (cheaper area) knitting funky hats for ferrets (extra income).

Rent rooms in your own place

If you own your own home, you can raise money by renting out a spare room – and the first £4,000 you receive is tax-free.

You can find a lodger through a site like Spareroom.co.uk, and even specify that you only want someone who’ll stay Monday-Friday if you want some privacy at weekends.

If you’re willing to put in more work, you’ll get higher returns by renting your room through a short-term lettings site like Airbnb. You’ll have to take the time to correspond with booking enquiries, then check people in and out and deal with cleaning on a regular basis, but the profits can be very high if you live in an area with decent tourist or business demand.

Borrow a deposit

Here’s a terrible idea: you could take out a car loan, lie to the lender about what you’re going to do with it, lie to your mortgage lender about where the deposit has come from, and get your deposit that way.

Another terrible idea: Get a cash advance on a credit card and use that (at astronomical rates of interest) as your deposit.

I’d never do either of these things: not because I have any scruples whatsoever, but I’d just be too scared about everything unravelling. I don’t recommend anyone does these things. But you know what? Plenty of outlandishly successful people got started by doing things that seem like a terrible idea to almost everyone else.

Another option is to borrow money from a relative. This is something that gets mentioned in ‘how to get started in property’ books a lot, but I’ve never quite understood why a relative would lend money to someone with no track record to invest in property. If you really know your stuff and can produce a compelling business case, it might be worth a shot.

Aside: Another method suggested in ‘get started in property’ books is approaching relatives who’ll probably leave you something in their will and ask them for an advance. I just love this one. “Hey grandma! You know how you’re bound to die soon? And I help pick up your shopping sometimes? Well, check out this cosy little end-of-terrace in Weymouth…

Use your skills to start a joint venture with someone

The idea of joint ventures (JVs) get bandied about a lot, probably because they superficially seem like such a win-win. The gist is this:

Hey, wealthy family member / guy down the pub with a flashy watch / person I’ve cornered at a networking event! You’ve got the money, I’ve got the time: whaddaya say we buy some properties and split the profits?

And you know what? It can work. But how often? I’m dubious. I’d suggest that rich people are rich largely because they don’t hand out money to people with no experience and a Rightmove addiction.

But if you’ve got skills that are useful to other property investors, it’s a whole different kettle of bananas. If you’re a tradesman, you can offer to undertake another investor’s refurbishment for a cut of the profits. If you’re a solicitor, same again. Heck, even if you’re a marketing genius you could make yourself very valuable to an investor.

This kind of JV works because both parties are bringing their skills to the deal: you just need to agree in writing exactly what each person is responsible for and how they’ll be rewarded. Not only does it get you some cash towards your own deposit, but it’s experience too. Result.

Become a sourcer for other investors

There are plenty of investors with the opposite problem from you: they’ve got piles of fifty pound notes clogging up their mansion’s 12-seat movie screening room, and not enough deals to be able to use it all. Hey, no one said it was easy being rich.

What these investors need is someone to bring deals to their attention: a sourcer.

Sourcers work with investors to find deals that meet their specific investing criteria. So an investor might want properties of a certain type in a certain area, that they can buy for a certain percentage below open market value. Or if they have a different strategy, they might be looking for any property where the seller desperately needs to get out quickly and will sell for a big discount.

In either case, the sourcer’s job is to find these deals, investigate them to make sure they stack up, then present them to the investor. In return, they’ll receive either a flat finder’s fee or a percentage of the purchase price.

A variation is the business of selling ‘leads’. A lead is a situation where the seller has indicated they might be willing to accept a big discount, but it’s far from a done deal. Leads can sell at anything from £30 for someone who’s just filled in a form online saying they want to know more, to hundreds for those who’ve been qualified more thoroughly.

Sourcing is a great way of building up experience and making contacts at the same time, but it’s a competitive business and there’s always the possibility of getting cut out of the deal by an unscrupulous partner. It’s a good idea to build a relationship with other sourcers first, and maybe even assist another sourcer to find out how the business works, to avoid investing lots of time and effort with little reward.

What do the best ways of getting started with little money of your own have in common? They involve knowing people who you can help out, either by providing skills or finding deals for them. That’s where networking comes in, and luckily for you I’ve written posts about how to network effectively both online and offline.