How To Raise 100% Finance To Buy £1m-£5m Worth Of Bargain Properties In 3 Years Or Less Using None Of Your Own Money

Introduction

Lack of finance always stops every property entrepreneur dead in their tracks before they've even started ­ don't let lack of finance ruin your chances of success!

In fact, finance is easy to arrange when the deal you are presenting to possible investment partners is a good one. The problem most property entrepreneurs encounter is a severe lack of good deals which inevitably leads to great difficulty when raising funds from other people.

Remember the golden rule to making money in property

Bargain Properties Are The Very Foundation Upon Which All Property Fortunes Are Built!

When buying at the right price you have an infinite number of possibilities for profiting from any deal.

However, if you pay too much you will find it much harder to walk away with a healthy profit even if you do manage to raise the finance to take on the deal without putting any of your own money into it.

So remember, the key to making the finance side of things work is buying well below market value in the first place. Therefore, it's not the finance that matters so much at the outset, but the quality of the deal that you need to worry about.

When you are sourcing a steady stream of bargain properties, you will have plenty of equity or `locked in profit' which you will release with the help of investment partners. This article will show you how to make money from bargain properties by working with investment partners commonly called `private investors'...

Why Private Investors?

Because private investors are the most efficient way to build your property business in super quick time with minimal risk and capital from you. They are also a group of people with whom I have had many years of profitable business relations.

Private investors are generally active or retired business people with experience of property transactions. They have spare capital they wish to invest in projects, but not necessarily the time to find and manage a development ­ that's where you come in .

Here are the benefits of working with private investors:

Experienced investors bring many years of business experience to the table. This will prove immensely valuable to you when analysing new deals. Sharing the rewards with private investors allows you to avoid bad deals by following the advice of your investors from the outset. This greatly lowers your risk and allows you to build your property business very quickly.

Private investors can put you in touch with extremely useful people with whom you would have spent many years trying to build a relationship. They will have access to dozens of useful people in the community. You can take on deals without putting any of your own money down.

This is achieved through creative structuring of the deal (more later) and making sure you only work on bargain properties.

To further spread risk, you can take on multiple deals at any one time because it's other people's money you will be using to fund the deposits.

As you can see, private investors are the key to successfully growing your property business quickly with minimal risk and I'll be explaining everything you need to know if you want to maximise your profits and minimise your risk as we go on...

Case Studies

Ok, I think it's about time you looked at some real life case studies to show how this works in practise. The following deals are all properties I have purchased myself using private investor financing.

I will explain all the more complicated terms later in this report. I have also included notes explaining how I financed each of these deals.

Leicester (Beaumont Leys) 2 bed terrace

The owners had their heart set on a new property, and this one had become a burden.

It was in desperate need of modernising (just cosmetic stuff) and ordinary first time buyers were getting turned off. The property was also very dark and poorly lit throughout.

The sellers of this property became very motivated after the owner of their new property became fed up with their delays and threatened to sell it to somebody else.

An advert I placed in my local paper, using my proven marketing techniques attracted the sellers to initially give me a call. I made them a cash offer of £52,000.

I partnered with a private investor from London and picked it up using none of my own money. I had it painted, re-carpeted and cleaned before getting a mortgage valuation from the bank at £70,000. It's now worth around £100,000.

I did this one on 2% per month charged monthly (NOT daily) thereafter. This was a mistake on my part because I agreed to pay the loan back in 2 months (= 4% interest) but I went over by a few days and ended up paying 3 months interest instead (= 6%).

I quickly learned from this experience that daily interest charges are the way to go. The investor initially purchased the property for cash and I refinanced with a conventional mortgage lender to pay him back.

Since the property was purchased well below market value, I ended up with more than enough from the refinance to pay him back + interest + my other costs of doing the deal and leave some cash left over which I used to buy more properties...

A True No Money Down Deal!

Birmingham (Marston Green) 2 bed flat

The theme on this one is very similar to the last deal. This time the seller had found her dream home in Scotland and needed to sell this one to buy that one.

This deal came to me via my desperate seller finding website She filled in the online form, which automatically came straight through to me.

I admired this seller because she knew the game I was playing. She knew I was getting a good deal and even made a point of telling me several times during our negotiations that she was practically giving it away!

We spent a lot of time negotiating over the price. She rejected me flat out when I initially offered £70,000 when she wanted £85,000. As with all rejected offers, I wished her luck and played the waiting game.

She came back to me a few weeks later when the agents failed to find her a fast buyer and that's when we did the deal.

I raised the money from 3 separate private investors to purchase this one for cash. The mortgage surveyor who happened to be a local landlord himself, commented on the excellent price I'd managed to get, which put a smile on my face.

Inevitably when he asked me how I found the property I mumbled something about 'contacts' and moved onto another subject. He had no idea how many of these deals I was getting through the Internet right under his nose :-)

After the cash purchase I remortgaged the property based on its true market value with a conventional buy to let mortgage lender to pay everyone back + interest.

Leicester (Mowacre Hill) 3 bed semi (portfolio of 4 all with the same details as below)

I bought these 4 as a portfolio through auction in partnership with an experienced local property investor. He lent me the cash to purchase them all in one go and then I refinanced them individually to pay him back + interest. He charged me interest on a monthly basis, rolled up until refinance which suited me fine.

He wanted to work with me on this one because he could see that the deal was a very good one. All 4 properties were already rented to good tenants and the area itself has always been (and still is) in great rental demand.

Birmingham (Halesowen) 2 bed flat

This deal came to me via my desperate seller finding website. She had spotted an online advertisement, clicked through to my site, filled in a form on the website and then that form immediately came through to me via email. I gave her a call right away.

The seller was expecting a baby and she'd outgrown this flat. It needed modernising (she knew that it needed work) and she wanted a quick sale so she could move to a new place before the birth.

She'd already had offers from other cash buying property companies but interestingly she took mine over all the others - even though my offer turned out to be lower.

This is why it really pays to pay motivated sellers special attention when you meet with them. People generally prefer to work with people they like and trust to perform and not (as you'd expect) just those who promise them the most money.

I went 50/50 on this one with a property investor friend. We put in half the deposit each with the intention of splitting the profit 50/50 upon sale. We decided to do it this way because another property exactly the same as this one had recently sold in the next block to our property for nearly £15,000 more than the price we were paying.

Therefore, we would be putting down around £5,500 each and making 100% return on our money in 6 months. Not a bad rate of return when you think about it. Equal to 200% over the year.

Birmingham (Handsworth) 3 bed terrace

This one is a bit of a long story...

The seller found me through my Internet website and filled in my online form.

My website immediately emailed the form to me. Within an hour, we were on the phone discussing the property.

The seller needed the money to pay off her mounting debts and also purchase a new car. She had not put the property on with an agent. I realised why, when I visited the property personally and saw how much rubbish she'd packed into the place...

The highlight of my inspection turned out to be an 8 month old meat casserole shed cooked and then left in a cupboard to rot. I knew from the condition of the property, her desperation to sell and the price she was willing to accept that this was a fantastic deal.

In this business, it pays not too ask too many questions when you have a great deal staring you in the face. I had an investor from London make the trip down a few days after my viewing and we bought it soon after.

He purchased it cash and then I refinanced up to the true market value to pay his capital + interest back.

The investor charged me 2% per month (calculated on a daily basis). I also paid his legal fees. The refinance released more than enough to pay him, his interest and all my other costs.

Even after all that, I was left with nearly £10,000 in cash in my bank account which I used to purchase more properties.

Again, this illustrates the importance of buying your properties well below market value. Even if you make some mistakes and the development takes longer than planned, you'll still be able to realise a very healthy profit.

Kettering 3 bed terrace

The seller contacted me through a friendly estate agent who I had been getting to know via letters and postcards as well as a few personal visits made to her office. My persistence eventually paid off with this cracking little deal.

The seller's mother needed to move back to Russia very quickly and she needed a fast hassle free sale. The property had recently been completely redecorated so it was simply a case of placing an advert in the local paper and getting a tenant in, which I did within a couple of weeks.

I used a private investor to fund the purchase deposit. I remortgaged the property for 85% of its true market value (which happened to be a lot more then the price I paid for it) with a different bank to effectively own it without having put any of my own money in.

The investor charged me 7.7% per month for the money (which is very high) but it did allow me to do the deal very quickly and make myself a lot more back in profit. I ended up making £30,000 on this property in 2 ½ years.

This is a good example of the need for you to concentrate on the big picture at all times ­ what are you giving up now in return for potential future profits? If it's not much and you're making a lot more back over the long term, then it makes sense to go with the deal.

Northampton (City Centre) new build development of 24 apartments

This is my biggest deal to come out of my Internet desperate seller finding system. The deal came to me through an estate agent in Northampton who I had been leafleting using letters I write to get them calling me with deals.

There are 3 major private investors in this deal (myself being one of them). The project is still under construction. I will upload more pictures of the completed development as soon as I have them.

The profit will be split on a pro rata basis. In other words, what we each get back is based on what we put in as a percentage of the total.

By the way, I found all the bargain properties I've just shown you above by exploiting several closely guarded Internet marketing strategies in which I have specialised in for a number of years...

I highly recommend you have your own Internet desperate seller finding system, simply because it's such a lucrative method for finding highly profitable deals. So make sure you check out http://www.property-system.com for my FREE special report which explains everything you need to know about using the Internet to find bargain properties in an easy to follow step by step manner.

What Type Of Security Do Investors Expect For Their Money?

This is another question where most new property entrepreneurs get confused. Let's look at the hierarchy of how the investor would prefer to secure his/her money (with most preferable at the top):

  1. The investor owns the property under his name. If anything were to go wrong, he could easily put it on the market himself and get rid of it. The entrepreneur here could have an agreement with the investor to be paid a share of the profit when the property sells.
  2. The entrepreneur owns the property under his name and the investor takes a 1st charge over it. The property now becomes security for the debt. The investor becomes the 1st person to be repaid upon sale or refinance.
  3. The entrepreneur owns the property under his name and he has a mortgage on it from a bank. The deposit has been funded by an investor so the investor takes a 2nd charge over the property (with the 1st legal charge going to the bank). The investor becomes the 2nd person (after the bank) to be repaid upon sale or refinance.
  4. The entrepreneur promises to repay the money back to the investor when the property is refinanced or sold. In this case, the investor may choose to forego the expensive process of placing a legal charge over the property and arrange a solicitors undertaking agreement with the entrepreneurs solicitor to ensure that he gets paid first upon sale or refinance. This is a simple agreement between the entrepreneur's solicitor and the investor basically stating that he gets his money before the entrepreneur when the property is sold or refinance.

Notes

Investors can also take 1st or 2nd charges over other properties you own if that's how you want to do the deal. So instead of securing the money on the deal you are doing, you may get the sum secured on another investment property you own with sufficient equity or even your main home if you are happy with that.

When taking a legal charge, investors generally lend up to 75% of the market value of the property. So, for a £100,000 value property, investors will lend you up to 75% against it. Again, this emphasises why it is so important to pay the right price in the first place if you want to do no money down deals. This is a very common loan to value percentage on bridging loans. If you are doing a joint venture with an investor, then you can expect to raise more against the property. 100% of the value of the property + expenses happens all the time. More on that later in this report.

How Do Investors Make Their Money?

The great thing about private investors is their flexibility and willingness to help you make the deal work for everyone involved.

Generally speaking there are 3 basic ways to work with investors:

  1. Straight monthly interest charge
  2. Split of the profits
  3. Mix of the two

With the straight monthly interest charge, you just keep paying whatever you agreed per month until you pay the loan back. In this way, the interest you owe accumulates over time and is repaid along with the capital upon sale or refinance.

With a split of the profits the profits are split equally usually when the property is sold. When refinancing, the profits are harder to take out since 15% or more of it will be left in the property as equity.

Most investors I know prefer to go for the monthly interest route when funding property entrepreneurs. This is because the profit split scenario involves a level of uncertainty which does not suit everyone. The monthly rate is much more predictable and steady.

Remember, the interest payments are usually rolled up and paid back to the investor when you refinance or sell the property which is great for your cash flow.

Things to be aware of when working with private investors

  1. Arrangement fees ­ this a fee/s for arranging your loan. Many private investors will request you to cover their initial legal fees in setting up the loan. Some investors will not charge an arrangement fee.
  2. Exit fee ­ this is a fee charged when the loan is repaid. If the loan is repaid early, on time or late the investor may request the payment of a fee.
  3. Monthly or Daily interest ­ Daily is better because if you are being charged a monthly interest rate and you run into a new month then the full 2% for that month will be charged on day one. If you are being charged 2% per month on a daily basis then you only pay whatever portion of your monthly rate 1 day represents. So, if you're on 2% per month then you pay only 0.066% per day. So on a £200,000 loan that could mean the difference between owing £4,000 and £132 the moment you go into a new month by a single day!
  4. Reputation ­ every serious private investor will have worked with other property entrepreneurs before. Ask for previous references and follow up with them to check his or her standing.
  5. Early redemption fee ­ this is a fee charged for early repayment of the loan. Investors sometimes put this in because they like to see their money work for them for a certain period of time. If the capital comes back too quickly then the costs incurred in setting up the loan may not be offset by the interest payments or the investor may not have made enough profit.

What If I Have Had Problems With My Credit In The Past?

If you have credit problems then you need to speak with a mortgage broker (most will not charge you for an initial consultation) to find out what your options are in terms of raising bank finance. Even recently bankrupt individuals can get mortgages, so it's worth finding out where you stand.

Many property entrepreneurs prefer to team up with investors or `money people' to carry the properties under their name. Once the property has sold, the profit is split and the process repeats. In this way, it doesn't matter if you have credit problems because you never own the properties under your own name.

I usually purchased properties under my name using cash borrowed from private investors and then refinanced them out later. There is nothing to stop you doing the property up and selling it on instead of renting it out.

You may find this to be a good alternative to trying to obtain mortgages yourself for rental properties when instead you can just buy them cash, do them up and sell them on to bank the profits.

Do This A Few Times And You'll Have Enough Money In The Bank To Last You Several Years!

How Do I Find Private Investors?

Private investors are everywhere! Think about where people with money to invest may hang out ­ use your imagination! Here are some ideas to start you off.

  1. Property networking events ­ check out www.propertynetworkingclub.com run by my good friend Vanish Patel which is where you will find some of the investors I have worked with. I'm usually there too!
  2. Bank functions
  3. Rotary club
  4. Investment clubs
  5. Business link
  6. Charity functions
  7. Fancy restaurants
  8. Property investment forums ­ www.singingpig.co.uk run by my good friend Ollie Cornes is one of the best out there on the web
  9. Business minded friends and family
  10. Any business owner in your Town ­ there will be hundreds. Of course, not everyone will be interested but some will be. Remember, you're looking for people with money, little time and an inclination to invest that money.

When approaching private investors, politely introduce yourself as a property developer with a few good deals in the pipeline. Then describe the type of deal you do, or do intend to come across.

Ask the potential investor if he/she would be interested in a partnership ­ you find and manage the deals and the investor puts up some or all of the money...

Then see what the investor says. Keep doing this with as many qualified people as you can and you'll soon have your very own database of private investors whom you can email for finance as and when you find bargain properties.

Deals I would get involved with

Here are some deals I have been involved with in the past plus examples of the type of deals investors would be interested in ­ look at the margins to get an idea of the type of bargain properties you need to be coming across:

Property developer found a good deal, requires partner to finance it

A property developer has come across what looks to be a good property deal.

Here is how an investor would initially assess this deal:

  1. What is the exit strategy? In other words how will I get my money back and how long will it take to do so?
    • If selling, how is the market at the moment? Are the valuations realistic? How long will they take to sell? What happens if they don't sell as quickly as expected ­ can we cut the price and still make a profit?
    • If the developer is remortgaging the flats, will be able to get the mortgages? Will the rentals stack and does he have adequate provable income?
    • If something were to go badly wrong with the deal, could I still get all my money back out quickly?
  2. How much do you need and how much will you be putting in yourself?
    • The investor will want to know if you are putting anything into the deal. The more you can put in, the more confidence the investor will have in your belief that the deal will work out. Having said that, I have been able to borrow 100% from private investors simply down to the fact that we were paying so little for the properties... When this happens the investor knows his money is safe because the property itself is worth a lot more than the cash he has put into it. The key then is to make sure you are finding sufficiently below market value bargain properties.
    • Generally speaking on a deal like this, the bank will lend up to 75% of the property purchase price and 75% of the refurbishment costs. For 100% finance, the investor will provide 25% of purchase price and 25% of renovation costs. That's about £80,000 ­ we'll ignore the fact that the money will be released in stages for this example.

Here are the things the investor will be looking for in your figures. You'd be surprised if I told you how many people forget to include at least one of the following!

  1. Have you factored in the purchase costs?
    • Legal costs
    • Finders fees (if applicable)
    • Insurance
    • Mortgage valuation + arrangement fees
    • Investor arrangement fees (if any)
  2. Have you properly calculated the refurbishment costs?
    • 3 x new kitchens + labour
    • 3 x new bathrooms + labour
    • Carpets + labour
    • Decorating + materials
    • Fire escapes
    • New windows
    • Roof work if required
    • New doors + fire doors to comply with regulations if required
    • New walls and knocking through others
    • Rewiring
    • New lights throughout + plugs + switch's
    • Radiators (if required) otherwise paint existing
    • Fence repairs in the garden
    • Plumbing
    • New boiler/s + labour
    • Hiring skips
    • House & garden clearance
    • Plants inside and out
    • Making wiring, plumbing and gas comply with the appropriate regulations
    • Can the developer easily source the required labour and materials?
    • Where is he most likely to get ripped off (due to lack of experience?)
  3. Have you calculated the `carrying costs' ­ this also relates to servicing all the loans you've taken out to develop the property:
    • Time and costs to obtain planning permission (if not already obtained)
    • First of all a project like this will take around 8 months from start to finish.
      1. 3-4 months to do all the work if you're relatively inexperienced
      2. 3 months to find a buyer/s for the properties
      3. 2 months to wait for the money
      4. The investor will want to see that you have planned for a reasonable timescale for your project
    • The mortgage payments alone will come to £1,400 per month. How does the developer intend to pay these mortgage payments while the project is progressing?
    • An investor would be lending around £80,000 for this project. If he's charging 2% per month, that's £1,600 every month (rolled up and paid back at the end of the project) ­ can the project support £3,000 per month carrying costs for at least 8 months?
    • For an 8 month project, the carrying costs alone come to £24,000 ­ most developers completely miss this fundamental consideration!
    • Water and electricity (for the builders)
    • Council tax (if applicable) ­ exemptions on empty and unfurnished properties last for only 6 months where I do my deals
  4. Have you factored in the selling/remortgage costs:
    1. Estate agent fees (if applicable)
    2. Legal fees
    3. Remortgage costs (if applicable)
    4. Furniture rental ­ if you hire furniture to make the property more saleable
    5. Redemption penalty if the current lender has one
  5. Contingency of around 10% for unforeseen problems

Property developer seeks short term bridging

A property developer called me seeking £40,000 to help tide her over until a remortgage on some of her other properties came through. She'd spotted a new property she wanted to buy quickly, but the funds from her other deal had not yet come through.

I partnered with an experienced financier friend (for his knowledge and contacts) and we went in 50/50. Within a month I had the money back plus £1,000 on top. That makes an annual return on my capital of 60% - not to be sniffed at.

We kept our costs down by having a solicitors undertaking agreement so that her solicitor advanced us our money before paying the balance to the developer from her remortgage. This saved us from the expense of taking any charges on her properties.

Property developer seeks short term bridging ­ very risky and not one I would do again!

When I started out in this business a property developer approached me seeking £5,000 for a property deal. She offered me £10,000 back if the deal went through. I did not seek any security nor did I go and visit the property.

I borrowed the £5,000 from another investor (promising him 2% per month) and wired it straight to the developer. She didn't get back to me for about 3 months, after which I called her to ask how things were going. She'd just got back from holiday which worried me a little... "Whose money did she use to pay for that" I thought...

Luckily, within a week she wired back the £10,000. I gave the investor his £5,000 back + interest and kept the difference for myself. I used this money to pay my living expenses while I went out looking for deals.

Like I mentioned above, this isn't a deal I would go into again without adequately securing my position!

Here are some deals I would NOT get involved with

2 bedroom apartment off plan

Usually the valuations provided to me by people seeking funding on off plan properties are provided by the developers themselves or someone connected to them which makes that valuation very unreliable.

Also, it's rare that a potential borrower carefully plans for the possibility that the property cannot be flipped and completion needs to take place. All sorts of costs then come into the picture ­ VAT (possibly), legal fees, mortgage arrangement fees, finance carrying costs, insurance etc.

Then the borrower has the problem of paying the mortgage (assuming he can get one) while the property sits on the market. If it is rented out, then the value can drop because it's not brand new anymore. Plus, you then have the hassle of making sure it's compliant with the letting regulations and managing a new tenant.

From the investor's point of view, all the risk is on him. Off plan deals (by their very nature) in a non-booming market can become very risky indeed unless the purchase price is genuinely well below the actual market value in which case the deals can make good sense.

Piece of land with potential to build 10 new homes

Let's say the entrepreneur in this case started in property 4 months ago. In that time he has refurbished one 3 bed terraced property and rented it out.

As you can see, the entrepreneur in this case is bringing too little experience to the table. The investors will feel they are shouldering all the risk. With anything of this scale, investors want to see someone with experience in charge ­ just like you would want if it was your money being sunk into a deal like this.

So in this case, the investors would look to pay the entrepreneur a finder's fee for the value he brought to the deal (since he found it). After that, his role ends and the deal will be handed over to experienced professionals.

Sometimes an entrepreneur may prefer to take his finders fee as a share of the profit. An investor/s may agree to this since its better for their cash flow to pay you later and in your case if the project does particularly well then you get paid more.

Then again, you may prefer to take your money now and leave them to it. If you do really want to get involved with the project yourself, then expect to put some money down or put your time into managing part/s of the build. The more expertise you have in what you are doing, the more you can expect to be paid for your time.

I Want To Get Started Right Away, Without Any Finance. How Can I Make Money Easily And Quickly?

Here are 2 tips for you:

  1. Flip deals to people who have the money to buy quickly and take a finders fee for yourself of between 1% and 3% depending upon how much work you're put into the deal. Sometimes you can charge even more if the deal justifies it.
  2. Offer to manage the renovation projects of other developers for a cut of the profit. Find the developers by calling up people advertising "cash paid for houses" in your local paper and the yellow pages or look for houses with skips outside them ­ this can indicate a developer working inside. Nowadays, with quality digital cameras it's very easy for you to take dozens of high resolution pictures of any work done and email them off to the developer that very day. The deal you have with the developer, is for you to manage the development of the property by taking pictures of work done, chasing his workmen and sending him weekly reports. In this way, you get paid for being educated on property development plus you get to know valuable contacts. These contacts are worth more to you than any fee you earn from the developer!

Conclusion

So as you have seen, the key to doing no money down deals lies in getting bargain property deals in the first place... That's because your profit will already be in the deal when you buy!

It just needs unlocking by carrying out cosmetic work on the property and selling or refinancing it to take out the value.

When you have a deal on the table, make a little proposal on a spreadsheet. Document all the figures like this:

Date Item Entrepreneur Bank Investor
03 Mar 2007 Purchase £0 £135,000 £24,000
05 Mar 2007 Legals £0 £0 £600
15 Mar 2007 Refurbishment £0 £5000 £1250

. . . and so on . . .

This table clearly documents who is responsible for putting in how much, when and for what. Break it down as much as you can to cover all the likely costs ­ just like I did with the flats example earlier.

Send your proposal to a number of private investors. If the deal isn't a very good one, at least you will have the benefit of the experience of your investors in analysing the deal. If the deal makes sense, you can choose whichever investor you feel you would most like to work with.

By the way, I highly recommend you get your own desperate seller finding website to find you the kind of bargain properties I come across every week. Check out my FREE Investment course which explains everything you need to know about using the Internet to find you desperate sellers of bargain properties in an easy to follow step by step manner.

I hope you have found this special report useful. Wishing you all the best with your property business!

Kind Regards,

Parmdeep Vadesha - M.D. Vadesha Properties Ltd