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A guide to financing property investments

The biggest element of property investment is of course the money behind the investment itself. Being able to finance the investment in the initial stage, and throughout the period of owning the property, is essential to generating the expected return on investment. Therefore, all finances should be thought of before investing, and there are many ways in which you can get your finances in place.

A way of financing your property investment is through a technique called Financial Leverage. This is where you use the money from a loan or mortgage to supplement your own money such as savings or equity.A reason that many people use this technique is that it means investors can develop their property portfolio by using a combination of the money that they already have for use in property investment and money that has been externally sourced for their property investment.

Financial Gearing

Financial Gearing is also involved with Financial Leverage, referring to the ratio of debt to equity, and it is extremely important to investors for determining whether it is a viable investment or not. Calculating the risk and the potential returns of the investment is very important as it means you will be able to see whether the investment would be worthwhile.

There are also many other different ways of financing your project based on the needs of each individual investment, and many platforms for financing your investment can be difficult to comprehend. We have collated some of the very best ways to finance your investment, in order for you to get to grips with the options that are available to you.

Property Development Finance

This type of finance is often used by investors that are developing a new building or completely refurbishing an existing building. This property development finance is typically a short-term loan of up to 24 months, with the lender looking to advance approximately 70% of the gross development value.

Commercial Mortgages

A commercial mortgage often comes in the form of up to 75% of the cost to purchase the property, offering terms of up to 30 years. The finance is available to almost all types of businesses, including big limited companies and even individual traders. The commercial mortgage will be a first charge mortgage, and are based on the ability to make the monthly repayments and the profitability of the business.

Mezzanine Finance

Mezzanine finance is a complex way of financing your property investment, as it is secured against the property rather than the individual or the business; looking at different elements of debt financing and equity investment. This type of finance can help to fund projects that would usually require a larger capital share as it can help the property developers to reduce their cash flow requirement.

Bridging Finance

Bridging finance offers a fast way for investors and property developers to acquire the money that they need in order to fund the purchase of a property. This short term type of finance is a popular one, with the lender taking a first charge on your property and opting to exit once the loan has been repaid.

Portfolio Finance

This is a form of a long term business loan, offered to property investors that may have several different rental properties. The investor is offered the opportunity of borrowing money for different properties into one loan, with the loan being approved based on rental income.

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Our glossary of terms contains a comprehensive guide to various property investment related terms to give you a better understanding of the language and terminology used when talking about investing in property.

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