When a property is purchased, there is a good chance an investor isn’t able to afford the entire deposit to qualify for a mortgage.
As a result, there are methods they can use to get creative and make sure they can get on the housing ladder, without having to break the bank.
Some of these methods require no money at all and some result in the buyer using significantly less start up capital in the process.
Whatever the method, in this article, we will be going over twelve methods an investor can use to gain access to the housing market.
It is important to note these properties only go over methods and aren’t advice. It is vital you approach with caution and buy home insurance if you need to
12 ways you can buy a property with no money
There are multiple easy to buy properties with no money. Some of these require practical steps whereas others relate to the buyer’s mindset and how they approach the deal.
It is vital you begin to think outside of the box in order for some of these methods to begin making sense by opening your mind to larger investments like build to rent deals.
Adopt a property investor’s mindset
First of all, before you go about finding a deal or delving deep into one of these methods, it is important to adopt a property investor’s mindset.
This typically means removing rigidity in your ability to look for a deal. Always consider new options and whether the deal will pan out using forward planning.
When you first begin the process of trying to buy a property with no money, you may not think it is possible.
To start building your belief, it is vital you start networking with other landlords. For instance, by joining landlord associations and online communities.
Use lodgers instead of tenants
In the event you cannot buy a property and fill it with tenants due to legal reasons. You could fill the property with lodgers who have fewer rights compared to tenants.
This can definitely save money on a deal and with a particularly smart deal in place, you may be able to pay for a mortgage without using your own money and only using lodger payments.
All while benefiting from the limited rights that lodgers have such as looser eviction rules.
For example, lodgers are not required to be given the same notice period as tenants and nor do they need the requirements for a house that is classed as a HMO.
As a result, if you don’t have the money, adding a lodger to a property rather than a tenant may enable you to start collecting rent from a property without spending money.
Invest in a trust
Investing using a trust means investing in a conglomerate of real estate properties that are given a stock price and value based on a company.
For example, a company that owns a lot of property can go public which allows the everyday investor the ability to benefit from the increase in stock price and sometimes a dividend payment.
Using a trust is an option for buying a property with no money because there is no limit to how much you can put into a Real Estate Investment Trust (REIT), unlike a deposit.
Explore lease options
A lease option agreement is where the lease option is bought in a certain period of time but the finances aren’t set up until later on for a set period of time but you don’t actually own the land that the house is built on.
Generally, a property is paid for about five years down the line after the lease option agreement has been signed.
The benefit of this method is the buyer isn’t putting any money down in the deal and can use this initial money to add value to the property.
Lend amongst your peers
Peer to peer lending is where through an agreement based upon a business or personal relationship, money is lent for property investments in the same or similar way a mortgage would be lent. As a result, you may be able to benefit from property finance without having to pay standard market rates.
As an example, if the current property market prices mortgages as having a 6% interest rate, a poor person may be able to lend you the same loan based on a 4% rate instead.
This could be formalised through an agreement in paper or a verbal agreement and depending on the terms could be used as a point of reference if anything were to go wrong and the matter escalated to court.
Especially because a lot of those lending to peers may be nonchalant about the investment due to the money sent to peers being used for a second property.
Use investor’s money
Investors are useful in getting a lot of people who are new to the property market investing and making money with property.
This is because if you are able to find a good deal that has good evidence that you will make money with the investment, selling this to an investor will be appealing.
For instance, if there is a property that requires a deposit and a renovation and the person who found the deal has no money.
This deal can be “sold” to an investor and the person who found the deal can agree on a split on profit on the rental yield without any money down.
Alternatively, they can use an investor’s money for renovation and for the deposit and when the property is sold, they can split the increased value of the property with the investor.
As a result, someone who found the deal could make a significant amount of money without having to invest in the deal themself.
This is sometimes called “deal sourcing” where the main value the deal sourcer provides is saving an investor time and using their expertise to bring them new deals.
Those with money sitting in the bank but without the knowledge or time to invest their money would benefit from someone doing deal sourcing.
Find someone to joint venture with
A Joint venture works in a similar way to using an investor’s money, the difference is all parties involved in the deal will invest using some amount of value.
This means the deal isn’t passed on to the investor in the case of those using investor’s money.
All parties in a joint venture will continue to invest in the deal until they are able to make a profit or until they have achieved the desired outcome of the venture.
The relative investment may not be equal for all parties nor may it just be related to money.
Nonetheless, it is common for the proportion of the deal each investor puts forward to be the proportion of the profits they take.
This process can be set up professionally through a limited company and agreed upon before any money is put into the deal.
Sometimes, this is preferred for investors as opposed to deal sourcing where someone using investor’s money just sells the deal on.
This is due to those in a joint venture being seen as having “skin in the game” where they have the risk of losing money in the deal if things go wrong.
As a result, they are more likely to research the deal carefully and be more invested in the success of the deal in order to make a profit rather than just passing the deal on to an investor.
An example of a joint venture could be someone who is overseeing the deal, saving the investor time and splitting the profits with the investor once a renovation is complete.
Or it could solely involve money. For example, each investor puts in 50% of finance to the property, they both manage the deal and they split the profit equally.
Use equity you already have
If you are an investor who has a property already, you could use the equity available in the deal to invest in another property.
This could work by remortgaging the property and investing the equity that has been pulled out by using it for a deposit in a separate investment.
This is sometimes called a let to buy if the leftover equity is used for the investment in a buy to let.
This is made possible because as a property goes up in value, through appreciation or perhaps because there has been value added through a renovation, the mortgage is able to be re-evaluated.
For instance, a property with a £300,000 mortgage that goes up in value over ten years to £400,000 will have £100,000 of additional equity that can be pulled out of a deal.
Another way to use equity you already have is to pull money out of a pension to buy a house. However, this has to happen after the age of 55.
Purchase a below market value property
While this strategy doesn’t use completely no money and uses some form of bridging loan, it can still be used to gain access to the housing market.
If the buyer uses the bridging loan to add value to a property, for example, in a property that needs a new kitchen, they can successfully refinance and make a profit.
For instance, a buyer can purchase a below market value property for £80,000, find a bridging loan that is worth £100,000, and be left with £20,000.
They can use this money to add value to the property during the period where the bridging loan isn’t that expensive to pay off.
Now they have spent the entire budget of the bridging loan on the property, they could refinance the property for perhaps £130,000 with the additional value created.
The next step would be to pay off the bridging loan and collect rental income from the property they have just bought.
There is also the option to use the money made through the method to invest in a separate property using an additional deposit.
Become a rent to renter
Those doing rent to rent are able to pull profit out of a property without owning it. While they won’t own the property and be able to benefit from appreciation.
A rent to renter can guarantee rent to a landlord at a price that is less than the price that they can rent the property for.
Then, by taking over the management of the property, they can take the profit in between the guaranteed rent and the rent they are charging to run their business.
Sometimes, this has to be done by operating with a tenant in situ. You can read more in our article about the topic.
Look at a range of areas that are cheaper
While there are no properties on the market that are free, there are a lot of properties that can be bought for a cheaper price.
This can be done by looking for houses that are in need of repair or properties that are in a location that is less desirable than where you’re initially looking.
Another way you can find cheaper property is by purchasing a help to buy property because they are there to buy new builds that have little valuation history and the purchase price can therefore be reduced if you ask.
Use loans from lenders
Disregarding a conventional residential mortgage or a buy to let mortgage, you can use a loan instead of or in addition to a mortgage in order to find the finance for a property.
This is known as bridging finance where the loan must be paid back in a much shorter time period than a traditional mortgage.
This is common in cases where a buyer is using an auction to find deals. An alternative way of investing in property.
However, there has to be a clear strategy on how the loan is going to be paid back before a buyer starts investing in property in this way.
These types of loans often come with a high interest rate if you don’t pay back the loan in time, negating any profit that was intended to be made from the deal in the first place.
To wrap things up, it is clear that buying a property with no money isn’t a straightforward task. Nonetheless, it is clear that with the right research and execution, it can be done.
Especially by going over a property viewing checklist which helps you ask the right questions when you buy a property.
One of the biggest takeaways from all of these methods is that there is a different solution depending on who the investor is.