One of the biggest misconceptions in property investing is that you need a lot of money to get started. There are many out there that think property investors are rich, inherited large sums of money from family, or have these high paying jobs that pay millions. We are here to tell you that this is not true. Property investors are hustlers that overcome any hurdles that they may encounter. Don’t have money to invest in property? Let’s look at 5 different ways to finance the purchase of property.
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5 Ways to Finance Property Purchases
Some of the many benefits of investing in property is using other people time and other people money. You can grow a property portfolio using the resources, money, time and expertise of other people.
The first stumbling block to overcome is how to fund the purchase of a property. We are looking at 5 of the not-so-well-known sources of raising money.
1. The Bank
The bank is the most well-known source of financing for the purchase of property. All banks offer a Home Loan division that lends money to purchase property.
The process is straight forward. If you can cover the monthly instalment, your credit record is strong and the property is valued at or above the loan amount, the banks should lend you the money. They may request a deposit as a portion of the purchase price.
We explored in previous posts how Bond Originators can assist in saving you time, by applying to all of the banks and negotiating on your behalf.
Key Take-Away:
Applying to the bank is probably the easiest way to fund property, provided you are employed or receive an income every month.
2. Seller Finance
This is a relatively unknown source of financing a property, but a very effective source. If the seller does not require all of the money from the sale of their house, possibly they will allow you to pay them off over some time. This is called seller finance as the seller provides the financing for your property purchase.
You can take transfer of the title provided the seller does not have a mortgage bond registered on the property. Ask your lawyer for guidance and how to do this type of transfer.
Key Take-Away:
How can you do this type of transaction with the seller?
The easy answer is… Ask them if they will be open to it!
3. Instalment Sales
Purchasing a houseusing instalments. This is not very common, but the act that governs it, the Alienation of Land Act, was established in 1981.
How does this work? The difference between an instalment sales and seller finance is generally under an instalment sale, the seller will have a mortgage bond registered against the property. You would make arrangements to pay the seller in instalments over some time, not exceeding 5 years. Normally the instalment will cover the monthly bond instalment and possibly some extra cash for the seller.
Other options could be that you pay the seller a deposit, which is equal to the equity in the property and then your monthly instalments are the exact amount that covers the bond repayment.
You are not able to take transfer of the time in an instalment sale, but it will get registered on the title deed for your protection.
Key Take-Away:
Instalment Sales are very flexible, but the Act does govern the criteria that need to be met.
4. Joint Venture Partnerships
A joint venture is an agreement between 2 or more parties to bring their skills to a partnership. Having a partner that has funds or can get financing from the bank is an ideal partnership for you.
What can you bring to the partnership? Are you able to find properties? Renovate properties? Manage properties? Think about your skills and where you can add value to the partnership
Key Take-Away:
Using other peoples money to finance the purchase of property is a great way to grow a portfolio.
What skills can you bring to the partnership will determine whether someone will want to partner with you?
5. Money Investors
Many people have money but don’t have the time to find property, renovate and manage their property. As an investor, you could propose to borrow their money and use this to purchase property. If you offer them an above-average return, it would be better than them leaving their money in the bank.
Typically, a South African bank would offer you about 6% per annum return on your money. If you offered an investor 10% or even 15% that would be a win-win situation for all.
Key Take-Away:
Always make an offer that will be win-win for all involved.
And remember, always act with integrity!
Just remember, there are many out there that want to get involved in property investing and are looking for someone to help them get involved. Networking with people is the number 1 way to find those out there that want to invest. Tell everyone you know that you are a property investor. And tell them that you are looking for deals and looking for money to invest.
What are you focusing on? Are you looking for deals or looking for money? Do you have deals for others? Let us know if the forum and the community can help you find what you are looking for.
