Juliet Risdon
Juliet Risdon is a Director of JML Property and a property investor.
Having established the company in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
www.JMLProperty.com
info@JMLProperty.com
This is the sixth installment of an eight part series identifying the key factors in choosing the right investment property and putting your money to work.
It is becoming increasingly tough to borrow money from the bank, and there may be some alternative sources of funding out there worth looking at. Do all ‘creative financing’ techniques you hear about really work?
Yes, its possible that they do. They probably have all worked somewhere for someone at least once.
The point is NOT whether all these techniques will all work for you, but rather to know what is possible so that you can find your own creative ways to invest in real estate.
A word of caution though; We are in no way suggesting that you should use these methods instead of bank financing for a property. Rather, these are examples of alternative financing methods used around the world when bank finance is not available.
Here are nine ideas to get you thinking.
1. Hard money lenders.
You can ask around or find these online. They specialise in short-term loans at high interest.
Investors typically use this type of financing for a “fix and flip.” You can often get the money fast, and if you make HK$300,000 on a project the HK$100,000 you paid in interest well worth it (Be sure that you go to a reputable lender and have spoken to people who have used their services).
In Macau, don’t forget there is an additional stamp duty of 20% of the sales price and 10% of the sales price levied on the seller if they sell within 2 years or 1 year of purchasing the property respectively.
2. No-doc and low-doc loans.
No (or low) documentation of your income or credit required.
Online banks are known for this type of loan.
The catch is that you will only be able to borrow up to 70% of the purchase price or property value. If you have 10% in cash, you might be able to borrow the other 20% from a friend or Investor.
3. Contract For Sale.
Called “contract for sale” or other names as well, this just means the seller lets you make payments, and delivers the title upon payment in full.
4. Credit cards.
If a seller will take HK$200,000 down payment why not use a credit card?
In six months you will have paid HK$18,000 in interest on an 18% credit card. Don’t let $18,000 get in the way of making $200,000.
5. Retirement accounts.
Legal issues get pretty complex in this area depending on where you pay tax, but you can check with an accountant or lawyer to see how you might borrow from your own retirement account to finance real estate investments
6. Friends and family.
Keep it all business if you use this source. Loaning you money at 5% isn’t a gift if their money is getting 2% in the bank.
7. Get a loan on another property.
If you take out a home equity loan you can use it for the down payment on an investment property without violating the rules of the bank that gives you the primary mortgage.
In other words, you got in with no cash of your own.
8. Partnerships.
For bigger projects, you could arrange for different investors to each put money into a partnership. You would obviously require legal advice on this issue, and don’t forget about the potential additional stamp duty if you purchase through a company, but nevertheless forming a partnership is always a good option.
Finally, do remember that the banks need your money.
Commonly available bank interest rates of prime minus 2.5 – 3.0 %, effectively deliver an interest rate of 2.5% to 3%. The down payments of course vary depending on circumstances.
In next weeks article – Part 7 of Essential starters guide to real estate investment we look at calculating the return on an investment property.
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