My real life experiences in no money down property investing and buy to let

I do or have done all these 4 ways of raising a deposit. Let me give you a history of what I have done:

Trick	Description
Vendor Gift	I bought a house for £30,000 + £1,500 vendor deposit. This had two effects. I had to put down less as I was getting a £1,500 vendor deposit and it took the purchase price to the £30,000 bracket where you can get higher loan to values. SPEAK TO MY MORTGAGE BROKER NOW!
Cashback	I bought a house for £40,000 + £2,500 cashback. Again I had to put down less as I was getting a cash gift of £2,500. I had to put the £2,500 down initially but got it straight back after completion. SPEAK TO MY MORTGAGE BROKER NOW!
Cashback Mortgage	My first house was bought on a cashback mortgage. I had to put 5% down as a deposit to get 5% cashback. So I simply borrowed the 5% using my overdraft facility, approximately £2,500, and got the £2,500 back when I completed. SPEAK TO MY MORTGAGE BROKER NOW!
92% Residential Mortgage	The second property I bought was on a residential mortgage. I had to put 10% down as a deposit to get 2% cashback. When it completed I got a 2% cashback, around £1,000, and then told the lender that I wished to rent it out. They charged me a £75 annual letting fee and gave me permission to let it out. SPEAK TO MY MORTGAGE BROKER NOW!
Remortgage personal home	I'm always doing this! I recently remortgaged my house to 90% LTV, the maximum my lender would go to, to access another £35,000. With this money I bought another 5 houses! SPEAK TO MY MORTGAGE BROKER NOW!
Remortgage investment properties	I'm always doing this also! I'm aim to keep my portfolio at 85% LTV of its current market value. Recently I instructed my broker to carry out 31 remortgages in one hit - it certainly kept her busy! SPEAK TO MY MORTGAGE BROKER NOW!
Credit Cards	As mentioned earlier in the book I accessed £13,000, the maximum credit limit I have over 3 cards, to fund deposits for new purchases. When the remortgages came through on some other properties I paid back off the credit card balances. The cost of borrowing was no more than £500. The amount I made on the deal was £15,000. Who said credit cards are bad? APPLY FOR A 0% APR CREDIT CARD NOW!
Overdrafts	As mentioned earlier I used my overdraft for short term funding purposes. Remember that overdraft facilities have a maximum term, usually 1 year, and have to be renewed. Don't get caught out and be forced to pay back the overdraft as you never checked when the facility expired.
Unsecured Loans	I have over £100,000 in personal loans. I got these at the time I was starting. The properties that I've bought with this money have netted me around £500,000 in equity. Now that's not bad by anyone's standards! OPEN UP A BANK ACCOUNT WITH GUARANTEED OVERDRAFT!
Borrow off girlfriend	I sail very close to the wind sometimes and I got in to a situation. I was forced to make the choice of going to a bridging finance company who were going to charge me 22% APR, and £1,000 in arrangement fees to borrow £10,000. I decided to ask my girlfriend and I offered her 16% APR. She generously agreed and I paid her back in 3 months plus interest PLUS a set of diamond earrings!
Get a partner	I'm currently doing a deal with someone who has money but not the expertise. They will be fronting all the money and I will be investing it. We'll be going 50:50 on ownership and profits generated. I'm doing this because it's a sizeable amount of money. This will give me a greater market share than I already have - this is why it works for me.

Cost of holding money

I hate having money! Now when I say this I mean I hate having money that's un-invested. Anything in excess of float is not only making you no money but is costing you money. If I go out and raise £10,000 on an unsecured loan repayable over 5 years then I have to start making payments of around £200 pcm one month after the bank has advanced me the money. Lets say I don't find an investment. I will have to pay back 60 months x £200 = £12,000. That's not good business.

If I find an investment property the day I get the money (requiring a £10,000 deposit) and complete on the purchase 3 months later and find a tenant 1 month after that which provides me a positive cashflow of £100 pcm then the figures look like this:

Positive cashflow from investment 56 months x £100 = £5,600

Cost of holding 4 months x £200 (£800)

Profit arising from £10,000 loan £4,800

Two important things to notice about this example:

£4,800 profit is generated from taking out the £10,000 over 5 years. Even more profit will be generated after the 5 years due to the loan being redeemed thus increasing the cashflow assuming all other factors remaining the same.
Profit is reduced by £800 due to it taking four months to complete on the property and to find a tenant.

As a result of these findings two principles will hold:

Its good to borrow - as established above and,
The quicker you make the investment the more money you make.

Now I'm not saying go out and buy the next property that comes on to the market. But what would make sense is to try and find suitable property investments before you get the loan and as far as possible try and line up a tenant in advance.

Opportunity cost of money

I specialise in low value properties. I typically buy a property for around £30,000. This requires a £5,000 initial investment from me which includes the deposit, legal fees etc. Every time I get hold of £5,000 I'm itching to buy a property.

Now consider this. I'm walking past a car showroom and I see my favourite car, a Mercedes 300SL for £20,000. it's a bargain, I've got £20,000 in the bank and its in my favourite colour - BLACK! Should I buy it? If I did buy it for cash it wont cost me £20,000. it will cost me what I will lose in the future as a result of the purchase. Let me show you what I would lose:

Purchase Price of Car £20,000

Initial Investment for a house £5,000

Number of houses that can be bought £20,000/£5,000 4

Expected profit generated from each property £150 pcm

Total profit expected from 4 properties £600 pcm

So if I buy it for cash I lose £600 pcm. This is £7,200 per year and this excludes capital growth. If the houses have risen by 10% in the year then the capital growth is 4 x £30,000 x 10% = £12,000. So total loss including capital growth is £12,000 + £7,200 = £19,200 - almost the cost of the car! And what would the car be worth in a year? Well it wont be worth more than £20,000 that's for sure! Lets say £15,000.

So looking at the true loss of buying a car relative to buying 4 investment properties after 1 year:

Net Worth After Buying Car - Market Value of Car £15,000

Net Worth After Buying 4 Properties

4 Deposits x £4500 £18,000

Rental Profit £7,200

Capital Growth £12,000

Total £37,200

So after 1 year the difference in net worth of buying a car and investing in 4 properties is:

£37,200 - £15,000 = £22,200

That's an annual salary for someone! If the £20,000 that I had in the bank was as a result of a remortgage then the figures are even worse. £20,000 borrowed at 5% makes you a further £1,000 worse off. And if you don't redeem the debt after 1 year then it will cost you £1,000 year after year after year. If you let it run till the end of your mortgage term you may end up paying more interest than the price of the car! Very bad for your wealth.

I'll be honest with you however. I do own a Mercedes 300SL worth £20,000! But you'll be damn sure I didn't pay for it for cash. I bought the car on HP at 17.3% APR. It costs me £462 per month which is paid for out of my £600 pcm profits generated from the property purchases made.

The principle is - preserve your cash! Wherever you can get sensible credit (less than 20% APR) then take it. As long as you are willing to invest the money you have you can always service the credit you get with the profits you generate.

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