This is a question that we get asked a lot! The answer depends on who you speak to, and what strategy you choose to invest in property.

There are many people who are promoting purchasing property with none of your own money invested, and whilst this is true, it is not a strategy that we focus on. This promise is what attracts a lot of investors but be mindful that this is not a strategy that is easy to bank on in our opinion. There are a number of strategies that allow you to secure property with little money down but finding these deals can be very difficult.

If you are not concerned about owning properties and it is more about the returns that property provides, there are various strategies that can allow you to earn money from property without actually owning the property itself. An example of one such strategy is Rent-to-Rent, where you rent a property from a landlord for a period of 3-5 years and then sub-rent it. The money you achieve above the rent you are paying the landlord is your profit and apart from the risk of an empty property (and you are liable for the rent) you have no money invested in the property. This is obviously a different strategy to traditional investing, and is more of a job than a hands-off investment, in that sense.

There are an increasing number of people looking at this strategy, and whilst this is not a strategy that we would get involved with, there are lots of people making good returns this way. It is a win-win for the landlord, as they get guaranteed rent with no void periods, and the person sub-letting doesn’t need to own the property to receive rent from it. So, we can see why it is so attractive.

This is just one example of a strategy requiring no/little money down, and there are many others available – each with different risks and rewards. So, you can make money from property without owning property, but for the majority of people this will not be a strategy that they would pursue – instead preferring more traditional property investment strategies. This is where we focus our efforts.

How much money you require for traditional property investing obviously depends on the property you are looking to acquire, how you are planning to finance it and what your strategy is for the property e.g. rent or sell. You can purchase property using a bridging loan, and not require as much of your own capital, but this is a risky strategy if you are not experienced (and carries increased risk if you are experienced). Please ensure you do your research before making any financial decisions, as getting it wrong can be very costly.

Assuming you are purchasing an investment property in a traditional way e.g. Buy To Let property, using a 75% LTV (loan to value) mortgage (we recommend not exceeding 75% LTV), then you will need to find a 25% deposit. In addition to your deposit, you have the following costs to consider:

• Stamp Duty – 3% on top of standard rates (visit Money Advice Service for a Stamp Duty Calculator)
• Legal expenses – approx. £800-1500
• Survey costs – approx. £500 for a home buyers report.
• Mortgage costs (interest only) – (subject to which mortgage product you choose)

If we use the example of buying a terraced house for £80,000, then you would require the following:

• Deposit: £20,000
• Legal expenses: £800-1500
• Survey costs: £500

In addition to this, there are other costs to consider including; insurance (required by lender), mortgage broker fee (if you used a broker), renovation costs (assuming work is required) and any other additional services used.

Whilst the above costs are required to purchase the property, you can get some of this capital back if you buy well. Remember, you make money when you buy, and not when you sell! So, if you purchase Below Market Value (BMV) e.g. the market value is £90,000 but you secured the property for £80,000 by negotiating well, or because you positioned yourself well (finance in place, no chain, proof of funds, and keen to move quickly), then you have already gained £10,000 on paper. In addition to this, the property requires refurbishment, so you economically purchase a new bathroom, kitchen, carpets and decorate throughout costing £10,000.

You have now spent £10,000 refurbishing a property you purchased for £80,000, which has a new increased value of £110,000, as the renovation is a good spec. If you are selling the property, you have just made £20,000 (minus selling costs), but if you are continuing with the plan to rent the property, then you can re-mortgage and release some of the capital you have gained (after 6-12 months usually). So, the new example costs are:

• Deposit: £20,000
• Legal expenses: £800-1500
• Survey costs: £500
• Renovation costs: £10,000

Total capital required = £32,000 (assuming the higher legal expenses)

You now re-mortgaged the property at the valuation of £110,000, as opposed to the original £80,000. This is a difference of £30,000, which you can mortgage at a LTV of 75%. Therefore, releasing £22,500 back to you.

Although you have spent £32,000 to start your investment, within 6-12 months you have got £22,500 back leaving you with £9,500 in the property. As well as this, you are achieving a net rental profit of £390 per calendar month. Assuming no major maintenance is required (not unrealistic after a full refurbishment), this means that after approx. 2 years (24 months) of being tenanted you have none of your original capital left in the property. So, you have an asset with none of your own money in, paying you monthly returns, with the potential for capital growth and further re-financing. Then you use your income to start saving for property number two, and you are away.

The above is just an example, but is realistic in the North West. See our Case Studies page for our previous investments, the finances required and returns achieved. At Switch, we use our proven formula for achieving great returns on our investments, which is a systematic approach to property investing. This is where we focus our efforts, with a long-term view and a passion for delivering value for our clients and would like to help you do the same.

If you would like to find out more, then contact us for a free, no-obligation 20-minute consultation to see whether we can help you on your journey to achieving your financial and lifestyle goals.