One of the most important aspects of investing in properties is the money behind the investment. Ensuring you can actually finance the investment from the get-go, all throughout the owning of the property has been essential in the generating of profits.
Before looking at UK property investment opportunities, you need to be aware of your financial situation, and you should have thought out the entire financial process before you invested. There are so many ways that you can get your finances in order for this though.
You could use financial leverage, which is when you use the money that you have from a mortgage or loan to supplement your own, such as equity or savings. It is a popular technique that allows investors to develop a property portfolio using money that has, and externally sourced funds.
Consider Financial Gearing
This way to finance your first property actually has a lot to do with the aforementioned financial leverage, as it refers to the ratios of debt and equity. This is important to investors in helping them determine whether a property is a good investment or not.
It helps in calculating risk and what the possible returns of an investment would be, this is important as it allows you to see if an investment is worthwhile or not.
So, this is less of a way in which to finance your first property, but more of a critical aspect to consider before you invest in a property.
Commercial Mortgage As An Option
Commercial mortgages often come up to 75% of the cost to buy a property and will offer terms that can last up to 30 years. This type of finance is available to a vast majority of businesses, from individual traders to large limited companies.
A commercial mortgage is a first-charge mortgage and is often based on your ability to make your monthly repayments, and based on how profitable the business may be.
Property Development Financing
Property development financing is typically a finance type used by investors who are looking to develop a new building, or who are looking to entirely refurbish an existing one. This type of finance is more often than not short-term.
It comes as a short-term loan which usually has a maximum of 24 months. The lender will typically look to advance a good 70% of all of your gross development value.
Bridging Finances
Bridging finance is a way to finance that is fast and allows property developers to gain the money required to fund their property purchases. This is also a short-term finance option and it is a popular one, the lender will typically take their first charge on the property and opt to exit the contract after the loan has been repaid in full.
Mezzanine Financing
This is a more complicated way of financing a property investment. This finance is secured against the property, and not the business or the individual, instead looking at other, different elements of debt financing and equity investments.
This type of finance can also help you to fund projects which would otherwise usually need a much larger capital share, as these can help property developers to minimize their need for a cash flow.
Portfolio (Long Term Business Loans)
Portfolio financing is essentially just a form of long-term business loan. This type of loan is often offered to a property investor who might have a few or many different rental properties.
In this case, an investor is usually given the opportunity to borrow money for many different properties, but condensed into a single loan, and the loan is then approved based on the rental income.
Property Finance Tips Worth Noting
- There are many different ways in which you can finance an investment property, one way could even be to use the equity available via your personal home to do so.
- If you do not have the cash to fund a down payment, you can even use gifted funds, however, gifted cash HAS to be documented!
- Buying a property to renovate it and then flip it for a profit is known as ‘flipping’ to realtors.
- Banks will not always offer a hard money loan (although specific circumstances apply) most will only offer a typical mortgage.
- A hard money loan can act as short-term finances, but most will have a much shorter period to pay the loan back than you would find from a mortgage.
Overall
There are many ways you can finance your first property investment, depending on your situation, there may be many avenues open to you for property investment. Ensure you know all your options first!
