As suggested by the word “invest”, you need money to buy a property.
That should be so obvious there's no reason to take up valuable space on the internet by writing it. But – probably due to hazy pre-2006 memories and courses that sell the dream more than the reality – there are an amazing number of people who find it an unpleasant shock when I tell them they'll need access to cash if they want to invest.
(OK: there are ways into property – like rent-to-rent – that involve very little money. But as you're just controlling the cashflow from an asset rather than owning it, I wouldn't call it investing as such.)
In my book, the “Complete Guide”, despite calling it “complete” I didn't cover how to get the money together in the first place – in the same way that a magazine reviewing cars wouldn't start with an article about how to afford them. But the ability to generate cash is important – especially as remortgaging gets more restricted – so it's worth having a quick run-through the main ways to build that stash.
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?
Unless you're wired a bit strangely (like I am), saving isn't fun – but it's straightforward, it's within your control, and it's predictable. Just track your spending (I use Toshl) so you're aware of where your money goes, then find ways to reduce it as far as you can.
Look at it this way: every pound you don't spend on something else (or extra pound you earn) is a pound you can invest in property. Actually, if you're using a 75% mortgage, every pound you don't spend means you can buy four pounds' worth of property.
Some quick tips to have more left at the end of the month:
- Move to somewhere smaller or a cheaper area to save on rent
- Review your day-to-day spending in Toshl, and I bet you'll find £5 per day to cut out without much anguish. 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).
Borrow against your own home
You might have little in the way of cash, but lots of equity in your own home. Some people in this situation choose to extend their mortgage to release the cash to invest elsewhere.
Is it the right thing to do? Only you can answer that: would you rather be able to start investing earlier, or have the security of paying down your personal mortgage?
If you do decide you want to, there are a few things to consider:
- Some mortgage providers will be happy for you to borrow more against your house in order to invest in property, others won't – you'll need to check with your lender or broker
- Mortgages on your own home tend to be the cheapest debt you'll ever have, but it does mean that the property you buy will be effectively 100% mortgaged – so you'll have to check carefully that you'll be cashflow positive after repayments
- Your residential mortgage will be assessed based on your income, so you'll need to be able to show enough earnings to tap into that equity
Rent rooms in your home
If you own your own home, you can raise money by renting out a spare room – and the first £7,500 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.
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…
Invest with friends/family/strangers
Rather than borrowing money from your family, if they're keen on property too you could always invest together – or do the same thing with a friend.
If I could make this section flash in bright red text and have a siren going off while you read it, I would: getting money involved in a relationship is a great way to ruin it.
If you do decide to invest with someone you know, make sure you're 100% aligned in what you want to achieve. Discuss what you want to do, how you'll do it, everything that could go wrong, and what you'll do in each of those scenarios. Plan what will happen if someone wants to sell and the other doesn't – or one person needs their money back unexpectedly. Talk about everything, and get it all down in writing.
You could also invest with strangers – or rather, people you meet specifically for the purpose of doing property deals together. This only really works if you've got something other than money to bring to the party – like construction experience, or access to a source of unusually good deals.Let me break out the warning klaxons again: investing with someone you don't know well is extremely dangerous, and you should research them to death before committing – as well as getting every last detail of the agreement in writing.
Start a property business
If you don't have equity in your house or wealthy family and friends – and aggressive saving isn't going to get you there as quickly as you'd like – you'll need to find ways to make more money.
We've already covered starting a business in passing. It's unlikely to be the “instant gratification” option, because it usually takes a couple of years to really get to grips with any business and start making reliable money. But if you've got the time and will to do it alongside your normal job, any profit you make is extra money that can all go towards your property investments.
Doubly-beneficial could be starting a business in property. For example, say you start a property sourcing business – finding discounted property deals and selling them on to other investors for a fee. This is far easier said than done and will involve lots of drive, commitment and time before it starts working, but if it does work it ticks every box: you're earning money, developing the same skills you'll need to invest yourself, and building your network at the same time.
There are plenty of other businesses you could start around property too – like construction, inspections, estate agency, letting agency, photography, developing software, project management…your only limit is your imagination.