If you’ve been made to think that property investment is something that’s exclusive to the rich, you’re hanging out with the wrong bunch. Risk-averse investors have spread this notion for years and somehow it’s found its way into the web of myths that most people carry around. It’s erroneous and it could be what’s holding you back from engaging in one of the most rewarding investment journeys there is.
What you’ve been made to think, that one needs a butt load of cash to invest in property, is misguided. There are many ways to invest in the property market, and some of them require very little sums of cash. Some don’t require cash at all.
If you want to know how to invest in property when you have very little capital, here are some of ways to do so.
Buy ‘off-the-plan’
Buying ‘off-the-plan’ is purchasing a property before it’s reached its final stages of development and occupancy approval. It is a smart way of investing in property with very little funding. What you pay while the property is in its development stages is probably not what the market price will be when it’s finished. Property prices are likely to have surged, and in there is significant increase in equity.
There are also tax depreciation benefits and government incentives to this arrangement. First-time home buyers get exemptions and concessions of stamp duty as well as government grants for purchase of off-the-plan property. For example in NSW, as part of their Home Grant Scheme, off-the-plan buyers are eligible for a grant of $10,000 for new homes that don’t exceed $750,000.
In the event that the value of the property increases by the time it’s completed—as you should hope, you can use the newly acquired equity to borrow for a deposit on another property. The trick is to find a property with intrinsic value that’s located in a growing market.
Joint Ventures
Another way of investing in property when you have very little capital is by partnering with someone on a deal. Ideally, it should be with a person you can trust or someone with whom you can establish a fair agreement.
A joint venture partner will provide you with the necessary funds to get into a good deal that you otherwise could never have been able to finance on your own. The commonest of type of venture consists of two types of partners; those that put up the cash, and those that take out a loan from the bank. Say you can secure a mortgage but have very little cash to fund a deposit, you can partner with a person in the opposite situation. That is, someone that has the savings but whose borrowing capacity is iffy. The drawback is that you’ll have to share the proceeds from the deal, either equally (50-50) or as agreed upon, but then again, a bit of something is better than nothing at all.
Joint ventures can take you a long way; from your first real estate deal up until you have an entire portfolio. Between two high income earners, they can be real game changers for both. After the first equity deal, they have the capacity to break though less conservative investments that can generate high returns.
The key to making joint venture agreements work is having everyone in the venture in agreement. You can do this by setting out a clear budget and timeframe for how long you and your partner will hold the property.
Property Option Agreements
A property option agreement gives a prospective investor the right, but not the obligation to buy a property at an agreed price in the future. This is another ‘little-money-down’ kind of deal which you can use to purchase a property.
How do they work? A buyer and seller agree to an option agreement. In that, the buyer agrees to pay the seller—usually a distressed seller—a specified amount of money to acquire a right to purchase a property at an agreed price before a certain date in the future. This amount is shorted from the purchase price of the property if the buyer decides to purchase the property, otherwise the seller retains it.
Within the agreed upon period, the investor can choose to buy the property or not. Meanwhile, if they can find a way to increase the property’s value, they can sell the option to someone that’s willing to buy at the new value. This way they net a profit.
An investor with little money can use take advantage of these types of agreements. Their success relies on the investor’s ability to negotiate a low purchase price for the option and to improve the value of the property. This all hinges on one issue; the seller is supposed to be willing to agree to the option in the first place, and this usually occurs when they can’t sell the property.
So, as you can see, there are ways to buy a property with little money. Before you delve into anyone of them, make sure you’ve the guidance of a financial professional or a seasoned property investor to iron out the details for you and to provide you with other property investment tips.
