Property Investment can be a lucrative business. However, one of the most challenging aspects can be securing funding for your project. This blog outlines some of the most popular financial options for helping you fund a
property investment. The most suitable option for you will depend on your circumstances and reasons for investing in a property.
Buy-to-let mortgages are one of the most popular ways to finance your property investment. This is appropriate if you intend to let out your property to tenants for a regular rental income. This has some major differences to a standard residential mortgage and typically comes with more conditions. For example, the deposit required may be higher due to the increase in risk for the lender. You will also have to pay a higher stamp duty for a second property which is not your main home. Buy-to-let mortgages can be offered on an interest-only basis. This means that the payments you make each month will only cover the interest on your mortgage. As a result, capital debt will only reduce if you choose to make extra payments or take out a repayment mortgage. You will be able to pay off the capital debt at the end of the agreed term.
Hard Money Loans/Bridging Loans
Hard money loans and bridging loans are both short-term options for financing a property investment. Typically, these will be used in between buying one property and selling another or house flipping. House flipping involves purchasing a house which needs to be renovated and fixing it up in order to make a profit. The issue with this type of property investment is that it can come with a high risk, especially for beginners. Therefore, securing finance for this type of property investment can be more difficult.
Hard money and bridging loans are helpful in enabling you to do this, but they can be difficult to secure and come with conditions. The amount you can borrow is usually dependent on factors such as the property value you are borrowing against. Additionally, the repayment period is typically much shorter at 1-3 years and interest rates can be higher.
A commercial mortgage may be right for you if you plan to invest in a commercial property. These include properties such as office blocks, warehouses, shops or care homes. Similarly to private or residential mortgages, commercial mortgages work by the buyer putting down an initial deposit and then paying the rest over an agreed time period. The period of time is usually around 25 years, but it can be more or less. It is worth noting that if you are investing in a commercial property to let out to tenants, buy-to-let mortgage restrictions will apply.
If you are looking to find a great deal on a property at auction, auction finance can be a good way to finance your property investment. If you win a property, you will have to put down a deposit on the day. The rest of the balance is then due within 28 days. Lenders will typically set up an agreement in principle in advance of the auction. This will help you know how much you can bid on the properties at auction.
Please contact us if you are interested in learning more about property investment options in London.