Investing in property make great sense – we all know that; we see the success stories, see rental prices rise and property values soar.
Put money into property and there’s a very good chance you’ll enjoy healthy returns (although don’t be too cocky, a little on the pitfalls in a bit).
There’s one problem though. Investing in property takes cash; lots of cash. How can you get started with little in the way of savings? After all, that pot of gold is on the horizon if only you could take the first step (we apologise to any well-known sayings we may have destroyed in that last sentence).
At the House Crowd, we actually make it possible to invest with a small amount of savings. However, we’ll come to the obligatory plug for our own services in a bit. First, a few general thoughts.
What constitutes a little?
One man’s leftovers are another man’s feast…
So much depends on just how much you have saved up (or can access) and what your initial goals are.
For some people, £5,000 might be what they refer to when speaking of small savings pots, for others it could be £20,000, £50,000, £100,000 or more still.
It is though possible to invest with very small amounts. You can team up with others, for example combine five £5,000 investments and you have a far healthier sum.
Another option might be to again work in unison and invest a small percentage for an appropriately scaled back share. Need £100,000 for an investment – perhaps some of the investors could invest £25,000 while others could invest £5,000.
You might also have skills which mean you bring added value to an investment. You might have less capital to invest, but can you plumb, or fix electrics or have the skills for general maintenance? If so, this might make you an appealing investor as part of a group even if your cash stake is lower.
And if your savings barely scrape into four figures? With the House Crowd you can invest as little as £1,000.
With little in the way of savings you’re going to be scouring the mortgage offers available – who offers a decent rate, yet provides loans with a low deposit to loan ratio?
The problem is that if you do find lenders seemingly willing to throw money at you, the rates are unlikely to be competitive. In a world where investing in property is so competitive paying hefty interest charges will make profits hard to find.
With most lenders, you are going to be looking at deposits of at least 25% loan to value. The maths is fairly simple, for a £250,000 property you’re going to need in excess of £60,000 for a deposit; even a £100,000 flat or house will require £25,000.
On top of this you’ve got the fees associated with buying a property. A word of warning too – let’s say you have £25,000 to invest – can you really risk putting all that into one property? What if you need cash for any other purpose; loss of job, car repair, a medical emergency… Investing in property can provide an excellent income, but you can’t risk everything to make a go of it.
Where to invest
There are bargains to be had. If you want to invest in London then whatever you deem a small savings pot must actually be pretty healthy. Average house prices are north of £500,000 in many parts of the capital so a six figure investment pot is essential.
However, there are strong yields to be found elsewhere, areas where properties might cost £30,000 to £40,000 for a two or three bedroom house. If you can find an area where there is a demand for rental properties, yet the properties themselves are easily affordable then you can invest with £10,000, if not a bit less.
One question here is whether you are willing to invest anywhere in order to acquire property or do you want to invest only close to home? Widen the net and you have access to far more opportunity but it might also require far more work. For instance, many towns in Wales have properties available for around £40,000 but how much do you know about them?
What are the employment opportunities, are they reliant on a single main employer (and what happens should they go out of business)? Are there development plans, or rival development plans nearby?
If you want a bit more information on where to invest and how to choose an area, why not read our dedicated blog no the topic. We’re nothing if not thorough. (Add Link)
Spread the risk
If you only invest in one property you are at significant risk of seeing something outside your control reducing profits, and potentially leading to losses.
What happens if you have the tenants from hell, or if the property floods and is uninhabitable for a period, or if rental prices in the area suddenly suffer a major drop.
It is always best to spread the risk by having multiple properties as part of your portfolio, but with only a small savings fund it might be all you can do to invest in a single dwelling.
Does investing somewhere cheaper help? Or can you at least see a way to investing in a second property fairly soon?
Of landlords with a single property to rent out, a quarter are making either no profit or a loss. Yes, that means the overwhelming majority are making a profit, but 25% is still a sizeable amount. Can you afford to put all your savings into property and then not make a penny’s profit?
Crowd funded property investment
We’ve done well, we’ve left it 1,000 words before we start plugging ourselves. If you stop reading now you’ve picked up a few tips.
But, if we may say a few words about ourselves.
The House Crowd exists for entirely this purpose, namely to make property investing open to all. We buy properties, often hidden gems requiring a little work, and then look to rent them out for potentially healthy yields.
All the properties are chosen by buyers with expert local knowledge and experience, so we know how areas are likely to change and whether a certain postcode is too risky to consider.
And then each property has shares available – for example a £200,000 property might be divided between 20 investors each with £10,000 contributed, or indeed any number of investors each with varying shares. All you need is a minimum of £1,000 to invest and then you can start your property portfolio.
If you’d like to know a bit more about the House Crowd, please have a look round the site, there’s a tonne of information all about us. We’d also love to answer any queries – it’s 0161 667 4264 by phone or head to this page to write a message.