By Sheldene du Plessis – Senior Accountant: Ascendant Financial Services
Investing in property has long been recognised as a reliable hedge against inflation. As property values typically rise in tandem with inflation rates, real estate offers a solid opportunity for those looking to protect their wealth. “If you want to hedge against inflation, property is a good option,” many experts agree.
One of the significant benefits of property investment is the ability to leverage gearing, allowing investors to borrow money against the property. However, there are several innovative ways to invest in property without relying on your own capital.
Partnering with Investors
- Joint Ventures (JVs): This strategy involves teaming up with someone who has capital but lacks the expertise or time to manage a property. By contributing your knowledge and management skills, you can partner with them, sharing profits based on an agreed-upon ratio.
- Private Investors: Seek out private individuals willing to finance a property purchase in return for a share of the profits or interest on the loan. Networking events, property seminars, and personal connections are excellent avenues for finding such investors.
Seller Financing
In this scenario, the property seller acts as the bank. A loan agreement is made between you and the seller, detailing the loan amount, interest rate, and repayment term. This approach bypasses traditional financial institutions and can offer more flexible terms.
Using Equity
- Home Equity Loan: If you already own a property, consider taking out a home equity loan or line of credit against it to finance a new investment.
- Equity Partner: Partner with someone who has equity in their property. They can use their equity as a down payment or collateral, while you manage the operational aspects of the investment.
Real Estate Crowdfunding
- Online Platforms: Crowdfunding platforms allow you to invest small amounts into large real estate projects, sometimes without requiring any upfront capital. This approach pools funds from multiple investors to finance property deals.
- Local Crowdfunding: Collaborate with local investors to collectively invest in a property. You manage the property, and each investor contributes a small amount to the purchase.
Financing Out of Cash Flow
This method involves purchasing a business or property and repaying the seller, lender, or investor through the cash flow generated by the investment. This strategy is particularly effective when the asset produces steady income.
Rent-to-Rent or Subletting
- Subletting: Rent a property and then sublet it to others at a higher rate, keeping the difference as profit. This strategy works well in high-demand areas where you can charge premium rents.
- Management Contracts: Offer property management services to absentee landlords, negotiating a deal where you retain a portion of the rental income for your services.
Real Estate Investment Trusts (REITs)
Investing in REITs allows you to gain exposure to real estate without needing significant capital. REITs are companies that own, operate, or finance income-producing real estate, and they distribute a portion of their profits to shareholders.
There’s Always Money
The key takeaway is to never let the lack of capital deter you from investing in property. With creativity, negotiation skills, and a strong network, you can find ways to invest in real estate without using your own money. As the saying goes, “Where there’s a will, there’s a way!”
Source
https://www.linkedin.com/pulse/real-estate-inflation-hedge-prop-wealth
