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There is no doubt that buy-to-let properties are one of the most popular ways to invest money. Whether it is carried out by an individual (or couple) looking for a sensible way to get a return on their money, or a company buying up a portfolio of properties to rent out – this is a well established way to make a consistent profit.
Indeed, in an era of turbulent financial markets and a great deal of uncertainty, the property market is still able to hold up. And while the cost of living crisis, mortgage rises, and issues with inflation may put somewhat of a dampener on the most lucrative possibilities, property remains one of the safest investments.
If you’re convinced that investing in a buy-to-let property might be the right move for you, the next step is to establish how you are going to raise money for the investment. Whether you are looking to buy a property outright or find the money for a deposit and a second mortgage, the challenge of taking on another buy-to-let investment is the initial financial outlay.
In this guest article, we look at seven ways that landlords can raise the capital needed for a buy-to-let investment.
1. Sell an Existing Asset to Fund your Next Property Investment
One of the most obvious and effective ways of funding a buy-to-let property investment is by selling an existing asset. If you already have a number of property investments and want to add another, it may be the case that now is the time to examine the profitability of each investment. If you think you can make a better return on a new investment, it could be worth selling a current asset of yours to fund a new venture.
Of course, it is important to factor in all of the costs of selling when you consider this such as stamp duty tax and legal fees. While the finances might make sense, they can be easily tipped by estate agent fees or taxes.
2. Use your Savings to Purchase a Buy-to-let Property
It may be that you want to raise capital for your buy-to-let investment in the simplest way possible: saving up. You could use money from your personal savings pots here or profits saved up from your existing property rentals. Of course, interest rates have gone up and savings accounts are not likely to see a like-for-like rise, so there is an argument to be made that this isn’t the most lucrative way to raise funds for further property investment.
When it comes to saving, you need to consider where you can afford to cut costs either in your personal finances or in your business. If expenses aren’t something you meticulously record, it’s easy to ignore how much is being spent on unnecessary items. It is a great idea to create a list of exactly what you’re spending money on each month.
3. Sell Shares in the Business to Raise Capital for Further Property Investment
If you operate your buy-to-let investments via a business or if you own any other businesses, there are many ways that you can reduce your outgoings and make the investment more profitable. Claiming pre-trading expenses is a great example of this. However, these are options that affect the business after you’ve made the purchase; if you’re looking to raise capital, there are other options to consider.
One possibility might be selling shares in your business. For companies that are just starting out, it could be a great idea to look into SEIS/EIS – as this is a scheme that allows you to sell shares to investors in a way that is tax efficient for them. Investors who buy shares via SEIS / EIS get tax breaks and this encourages them to put money into your business.
4. Re-mortgage Another Property to Raise Investment Capital
It might be sensible – rather than selling an asset that you own – to potentially look at re-mortgaging the asset. If you have a property that has gone up in value, either because you have made changes to it, or because the market has risen, you are able to withdraw some of that equity tax-free by borrowing against the new value of the property.
The amount of money you can take out will be capped by the property’s rental value (or your income). If you are considering this option, be aware that taking on extra debt can make things more challenging for your cash flow.
5. Make Use of your Pension Pot for Property Investments
Under recent changes to the UK Government’s Local Government Pension Scheme (LGPS), over 55s are now in a position to withdraw all or part of their pension pot and then use their money as they wish. This gives over 55s the option of investing money into something that they believe will be more effective than a pension fund.
Once again, this option can be risky but it can offer you an easy route to the money you are looking for to make an investment. Of course, using up a large amount of your pension pot does put you at risk – it is important to talk it through with a financial adviser before taking these steps.
6. Improve your Credit Rating to Access Better Mortgage Deals
This is a more unconventional idea in terms of raising capital for investment. Naturally, improving your credit rating won’t actually provide you with any direct capital to invest. Where it comes in useful is that it offers the chance to borrow more money or get access to a lower interest rate when you come to invest.
7. Team up!
If you have always considered your buy-to-let investments as a solo opportunity, it could be time to branch out. You might choose to work with a friend or family member, who might be able to provide some capital.
There are many ways that you could work this, either by creating a shared business to operate the investment from or simply by taking the money as a loan. From there, your friend or family member can have as much or as little input on the project as you like.
