Man using calculator holding model house

How Landlords Finance Investment Property

If you’re interested in becoming a property investor, developer or landlord, one of the first questions you may ask is “how do landlords finance rental property?” Well, there is actually a range of finance options available to get you off the ground.

Even experienced large portfolio landlords can find the market of alternative lending rather vast and complicated, so we’ll run you through some of the basics that should be on your radar.

Man using calculator holding model house

Bridging finance

In addition to the money needed to begin the purchasing of properties to rent out, prospective landlords may need assistance when it comes to meeting the other related costs associated with property investment.

Short-term funding options are available for this purpose, and we call them bridging or development finance.

This type of finance can be used to cover anything from development work, like doing up the bathroom, kitchen and other related factors, to the costs of decorating. In addition to exploring bridging finance, many landlords consider invoice factoring companies to generate some income.

We are also acutely aware that landlords are constantly searching for ways to expand their portfolio or otherwise maintain their existing stock in good order, particularly for the long term. This most often requires a level of investment or some spend to get that done.

With this in mind, we having been working closely with another company who provide short term bridging finance opportunities to landlords.

Sandringham Finance & Associates are a family based company and unlike most, if not all other bridge lenders, Sandringhams owners are UK based landlords and property investors themselves. They’ve even used our lettings service in the past.

They developed a structure perfect for landlords with varying portfolio sizes, this allows them to offer bridging loans starting from as low as £30,000 and up to £1.5 million.

If you would like a quote or to discuss bridging options fill in the quick contact form on the Sandringham Finance website or give the office a call on 0203 955 5676 and a member of the team will be happy discuss your requirement.

Buy-to-let mortgages

A buy-to-let mortgage can be a good starting point, depending on the scale of the property you have in mind. They are an ideal choice to secure finance for a single property, but if you plan to expand your portfolio it might make better financial sense to seek additional funding from other sources. Nevertheless, a buy-to-let mortgage is designed to do exactly what the name suggests, and can sometimes offer better rates than the alternatives.

Commercial mortgages

A commercial mortgage can be used for the purchasing of commercial properties like shops, warehouses and offices; any property that isn’t residential. In broad terms, they work in much the same way as private mortgages, enabling you to spread a large cost over a long period of time.

The simplest commercial mortgages are usually sought by businesses who want to claim ownership of their existing premises. For example, when a dentist wants to purchase the building where he/she practices in order to escape the rent cycle, ownership is the answer, but they may not be able to afford it outright.

Sometimes it can be possible to secure finance using additional security other than cash. But this will require you to have favourable circumstances like a history of operating from the same premises and a strong trading record. It’s easier for existing businesses to secure a commercial mortgage, but it’s not impossible for a startup. A full-time landlord with a large property portfolio may be able to secure a commercial mortgage to purchase more properties.

Auction finance

Ambitious property developers who are starting out on a tight budget will often turn to property auctions as a great source of bargain buys. If you choose to go this way, it is essential that you either use professional services to support you or have enough confidence in what you are doing, otherwise you could end up with a bad investment or missing out on a good one.

There are various lenders with specialisms in providing auction finance, and they will ensure you receive the requested funds promptly. This is very helpful because the majority of auction houses require the capital within four weeks of a winning bid, so there is no time to waste.

Some lenders will even give you the necessary finance before you go to auction, enabling you to arrive with an ‘agreement in principle’. This arrangement can be especially helpful for established property developers, but even enthusiastic first-timers may be able to get funding when they buy an auction property with just enough to pay the deposit.

Options in the public sector

There are various public sector funding schemes in existence that can be applied to property investment. These include the Private Developer Scheme, Private Finance Initiative, Leasehold and Crown Build.

It is worth exploring these options to see if there is anything that you might qualify for as a property investor.

There are some changes taking place amongst the public sector options, and while there is a certain element of risk involved, some property developers will think the potential rewards are worth it. Do your homework and weigh up the pros and cons first.

Home equity loans

This is a source of finance that is only available to landlords who already own property. But they are not a privilege, and not all landlords will be able to secure a home equity loan. Rental property portfolios can be very difficult to cash out with remortgages, thanks to legislation intended to prevent investors from having excessive leverage to keep expanding their portfolios. Refinancing your mortgage is a possibility, but there are better rates available on the market.

Mezzanine finance

Finally, there is a rather complex option which some landlords use. Mezzanine is a hybrid type of finance which combines elements of equity investment and debt financing, frequently secured against the property being purchased. This option can help property investors reduce their cash flow requirements, meaning they can finance projects that would otherwise require a larger share of capital.

There are many options available that landlords use to finance their property investments. Every situation is different, and some of the finance options will not be right for everyone. The biggest variables are your starting budget, the type of property you want to buy and your background as an investor.

About Shannon Hall

Shannon HallShannon joined LettingaProperty.com in 2015 and has proven to be an exceptional Valuations Manager by supporting new landlord clients in switching to our digital platform. Not only is Shannon an experienced landlord herself, she has achieved professional qualifications in Residential Lettings & Property Management, holds a NFOPP Technical Award and has completed a Diploma in Business Management.

One Comment

    March 9, 2019 REPLY

    Hi, I have not enough cash to buy more properties investment also release equity of properties have will not change the situation

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