8 Ways to Raise Capital for an Investment Portfolio
The finance you use for buying property will ultimately depend on the type of property it is, whether you plan to let it out as an ongoing concern, and what funding streams are available to you.
For most people building up a property portfolio, it is to enable them to become a landlord and to rent out their properties – whether that is to domestic or commercial tenants. This will determine whether you are likely to get a buy-to-let mortgage or a business loan, or will be able to attract investors.
Alternatively, you could use your own savings to put up the capital for your investment portfolio, but this is a high-risk strategy that could see you left with nothing and is only advisable if you are an established property investor.
Equity Release Mortgages
If you own your own home, you might decide that releasing some equity in your house to allow you to buy further properties is the way forward, providing there is enough in the pot to do so. But, you need to bear in mind that you are risking your own livelihood – and potentially that of your family – so it needs to be carefully considered before making that step.
But, it isn’t a choice you need to make alone. A specialist mortgage broker can help you understand the benefits and pitfalls of each type of mortgage, allowing you to make a much more informed decision for your own personal circumstances.
Bridging Loans
Bridging loans are a good option, particularly if you are buying a property that needs a fair bit of work doing to it, but that you are managing to get cheaply. A bridging loan would enable you to do the work required and then pay it back when you have rental income or if you then decide to sell the property on at a profit.
Bridge-to-let mortgages are a specialist form of bridging loan which provides applicants with a pre-approved buy to let mortgage. It is designed for investors to enable them to buy a property they’d otherwise struggle to afford with a standard mortgage.
Buy-to-let Mortgages
A buy-to-let mortgage does exactly what you would expect, providing you with favourable rates if you are going to only let out the property and not live in it yourself. The deposit for these types of mortgages is generally higher, but you will likely just pay back the interest each month, allowing you to save more to repay the capital at the end of the mortgage term.
Commercial Finance
A commercial loan or mortgage can be used to buy property and is available with up to 60% loan to value, making it an attractive option for raising capital, particularly if the premises is to be used as a commercially-driven unit, be it retail, industrial or offices.
You could also use commercial finance to purchase commercial premises, but then apply for a change of use to be a domestic home. The process to do this has been made a lot simpler than it used to be, and you could find that a commercial unit is cheaper to buy than a ready-made home.
Business Loans
Business loans are used to set yourself up as a property investor and will be based on your own circumstances and how you intend to run your investment portfolio as a business concern.
Most high street banks will offer business loans, and it is worth approaching your personal bank to find out what they can offer you in terms of rates. Having a relationship with them already may mean they look at you more favourably, particularly if you can show that you have a good credit history and are not overdrawn. But, do shop around, and check out building societies and other financial institutions, such as official start-up loans companies.
Crowdfunding
This is an unusual method of raising capital for property investment, but if the property you are hoping to buy is a beloved community building that will be torn down unless it is sold to a willing investor, then crowdfunding could be a surprising option.
You would need to show that you intend to bring the building back to life and that it would be of benefit to the area and its community. But, if that is your plan, then asking for crowdfunding to realise your dream could make raising the necessary capital a reality.
Personal Contacts
Another slightly off-the-wall suggestion, but one that is often lucrative, is to ask your own friends and family if they want to invest any of their own money into the project. Our only caveat here is to make sure that you put the agreement in writing, so there is no confusion as to what is being paid by whom, and what they will get in return, as well as the expected timescales.
Angel Investors
If your own contacts aren’t able or interested in investing, there may be so-called ‘angel investors’ who will want to come on board, if they think it is something that will make money or is a project that particularly interests them. It is worth putting about some feelers, to see if anyone bites. But, don’t rely on this as the answer to your capital problems, and definitely have a back-up plan in place.
Final Thoughts
Raising capital for anything isn’t a simple process, but don’t let that put you off. Everyone has to start somewhere, and if you have the vision and wherewithal to achieve a property investment portfolio, and the desire to succeed, then you are halfway there. There are several options available to finance your projects, you just need to pick which one best suits you and your needs.
