My Rules for Creative Financing on Property
People invest as a reflection on their personality. I am very very risk adverse. My wife says…obsessive…compulsive paranoid. This has kept me in the property game so long. I exited all my holding in Jan 2006 however I waited too long to get back in. I am concerned now, but believe in the methods in which I am investing via HMOs & Social housing as recession resistant. I have been through several real estate crisis’s. More so I surround myself with older people who have seen things and experienced things that I haven;t. My mother lived through the Great Depression. Property investors who were not leveraged and clever succeeded. The idea of boarding houses were prevalent in the US. Boarding houses are very similar to Professional HMOs. It is cheaper to live in a HMO with all bills than a 1 bed flat. Creative investing means you must invest in incredible deals, or it’s simply not worth doing. There are exceptions to this rule, of course. Sometimes the method of financing can sweeten a deal enough to entice you to jump in as in number 1.
So considering the above…I want to share my personal creative financing ideas on property
1. When investing creatively, you need to find even better deals than those who invest normally.
I have far greater potential for profit and for a better return on investment than the normal investor when buying right. An example of creative investing is an owner hold back mortgage…. less of my cash is at risk because I have no cash invested at all. However, what if I decided to be just a “normal” investor and pay full price for that $100,000 property, with no money down? Most likely, my mortgage payment would be so high that good cash flow would be out of reach, and I would not have the equity necessary to be able to sell the property. In this case, the “good creative” investor would be in a better position because they owed only $70,000.
I have seen in bad property markets sellers only option to sell was to hold finance. Us as investors can benefit from this.
2. When investing creatively, you must be extremely careful, paranoid, conservative, whatever you want to call it.
Always be conservative and do not fudge the numbers. There will always be repairs some can be expensive, You will need to evict deadbeat tenants. Plan for these costs and only buy property that proves to still be a good deal even after a conservative estimate.
Who would have thought that the Govt would change the rules of the game of Buy to let as they have. Personally…yes…personally that is why I strive for high yielding professional HMOs. These are cash cows. If you have a basic buy to let, what happens when the tenant moves out or does not pay. At least with a HMO you have multiple rooms contributing to offsetting costs and hopefully generating profits.
3. Always have a cushion for the Unknown
Maybe you will get killer good deals if you are going to invest with no or little money down, you still need to understand that bad stuff happens. Unexpected stuff….You need liquidity. “You can go broke buying good deals.” For example, if you need a new roof….or if needed to evict a tenant, could you handle several months of lost rent, more than 2,000 in eviction costs or worse the time and emotions, and several thousands of dollars to repair the property? What if you had to do this twice in the same year or three times?
You can not eat all the cake. Be realistic…Screen your tenants. Have a plan…Follow it…
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