4 ways to creatively finance a property deal

The biggest excuse, by far, that many property investors make is to say they don't have money to invest in a deal, says property investment expert and property wealth coach Andrew Walker.

"We have a saying in the property world: find the deal and the money will come," he says.

He further notes that relying on bonds to finance property purchases means one is subject to certain limitations - namely, interest rates, which are not always favourable, and the fact that one's earnings determine bond eligibility.

"Most South Africans don't have the cash to buy a property, so they are reliant on the [limited] banking system. This is where creative finance comes in," says Walker.

He sees "creative finance" as the solution to funding deals without using banks, and shares four such ways.

Joint venture partnership

A joint venture partnership essentially means you will go into business with one other person. You will set up a contract where the two of you invest in a property together.
You obviously have to choose a partner who has the cash facilities to make the deal work, and someone you can trust and rely on to help you where needed.

For example, once you have found a distressed property, have run the numbers and ensured that you will see a sizable return, the next step is to leverage your network of people you know and ask them for help or an introduction to someone who may be interested.

Once you have a partner who likes the deal, it is time to set up a contract. Consult a advisor and ensure your contract protects both parties.

Seller financing

This is where the seller "loans" you the money.  According to Walker, these situations are not easy to come by, but are a potential cash cow.

An example would be where you find a highly distressed property that has been run down over many years. The owner struggles to sell the property and is willing to negotiate.

You could negotiate with the seller that you invest money into renovating the property while they still live there, and once the property is back to market value, you can sell it together and split the profits.

It is, however, important to have a solid contract in place. You must make sure to get legal advice and set up a contract that protects both parties and ensures a fair deal going forward.

Credit cards

"We use credit cards for investment purposes. If we use our credit card for positive cash flow properties, we can use the profits to pay off the credit card quickly, thus not being affected by the high interest rates," explains Walker.

"In general, we would only use our investment cards for the smaller items, like sheriff's commissions, transfer duties, builder's material and even the refurbishment costs."

Walker says, regarding credit cards, one can negotiate with banks on interest rates.

"Once you use your credit card on a regular basis, and pay it off regularly, the banks will begin to reward you. For example, if you use your credit card for a R100 000 refurbishment and within six months of the deal you pay it off, the banks will reward you, often with miles," he says.

"With using a credit card, you are not using your own money, but rather the bank's money. Remember that buying a liability with your credit card is wrong and will lead you down the path of financial instability. Use the credit card wisely and for assets only."

Using your credit card will also build your credit profile, which is used by the banks when they want to loan you money.

Crowd funding

For example, you might find a property that requires you to invest R1 million in total (including renovations and all fees), but you only have R200 000. Also, you have been bonded to the maximum.

Maybe you have four friends who each have R200 000, like you, and they want to get into the property market to diversify their investment portfolios. You could to set up a company and pool everyone's R200 000 into an investment pot.

If, for example, after renovating the property you sell it for R1.2 million. You can then reinvest that money into another deal or you can pay out the profits to the company shareholders - your friends - and use your profit to go out on your own.

Walker strongly recommends hiring an attorney to help you set up the legalities required for the company.

* Compiled by Carin Smith

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