Understanding Low And No Money Down Investment

Let's start our exploration of Low and No Money Down investment by making sure that we agree exactly what it is, and is not!

It might be obvious to you, but I frequently talk to investors who have a different understanding of exactly what it means. This can lead to confusion.

What No Money Down Investment is NOT...

It does not mean buying a property without needing any money of your own! In all the property purchases I have completed, and in those which Axis has sourced for our investors, it has always been necessary to contribute some cash, often to cover the deposit and fees, during the purchase process.

What Low and No Money Down Investment IS..

It is a situation where you end up owning a property, with little or none of your own cash in the deal.

This situation can be arrived at in three different timescales:

Immediately on completion of the purchase: For many investors this is the ideal scenario as it means the fastest recycling of any funds used to support the purchase process in the NMD deal. However it presents the greatest risks and many deals that we see offered elsewhere use questionable techniques that are at best in a 'grey' legal area and at worst downright illegal.
Within a reasonable short time after purchase, let's say 6-12 months. Whilst investors may have to wait longer to re-cycle their money, the inclusion of this timescale for a No Money Down deal opens up a number of additional, profitable, approaches to investing which we will discuss throughout the next few pages. It is also easier to achieve.
Over a medium term timeframe, let's say 3-5 years. This timescale means using some of your capital for considerably longer, but provides the greatest security and comfort for Buy To Let investors.

And Low Money Down?

A Low Money Down deal is where you actively use loan finance to use as little of your capital as possible, but you haven't quite achieved a No Money Down deal.

So in late 2010, investors typically have the option of borrowing up to 70%- 80% of the net price of a property, resulting in a modest investment of c. 20% - 30% of the net price plus fees and costs. Because Axis finds Below Market Value property, the amount you invest is based on the reduced, net, price and not the previous gross price!

We’ll show you the detailed calculations later in this Smart Guide, but as a quick summary, on a property with a market value of £150,000 and an Axis negotiated BMV price of £105,000 (30% discount) you may need to invest:

· £37,500 deposit if paying market price

· £26,250 deposit if buying through Axis, Below Market Value

Not only does the investor pay a lower deposit, they benefit from lower borrowing, and often a lower interest rate as well because Axis has access to special rates! The end result is not only a lower cash contribution, but immediate equity and a far higher positive cashflow.

A reminder that you will incur fees and costs on all property transactions.