Have you ever wanted to invest in a property but don’t earn enough money at the moment? Well, it is possible for low income earners!
In addition to the traditional ways of getting into property investing on a limited income, crowd funding now enables aspiring property investors to buy a small share in a property for as little as $2,500.
Let’s look at some of the options for property investing for low income earners.
Joining forces with friends and relatives
This option will boost attractiveness for banks. For example, a young person living at home earning $45,000 a year with savings of $30,000 is necessarily going to have banks clamouring offering them a home loan. But if you can get three people with combined incomes of $135,000 and provide a deposit of $90,000, it’s a totally different story.
For example, if you buy a new townhouse and your loan is $360,000 including buying costs, each of the three buyers can have a loan split of $120,000. One may pay interest only, one might make principal and interest payments and one could make large extra payments. When the property is sold your net proceeds will vary depending on your loan balance at the time of sale.
You can collaborate to invest with friends and family!
Family pledge loans
A family pledge loan can work for low income earners buying a low-priced property, particularly those living at home as no rent means you can borrow more. Essentially if you have a family member with equity in their home, they can let you use that equity as a deposit to buy your first home or investment. You will need to show the bank some savings history but you can borrow 100% of the cost of buying the property.
Crowd funding — an exciting new option
There are several different options to look. Covesta and DomaCom are examples of companies offering property crowd funding. Their models enables low income earners to invest in direct property in a new way.
Here’s how it works:
- A property is loaded on to the platform and you can nominate to buy a percentage of that property. Your investment can be from $2,500 to any amount you like.
- Each month you receive your share of the rent.
- Every year the property is revalued so you know how it is performing from a capital growth perspective. After five years all owners vote on whether to hold this property for a further five years. If you vote to sell and the other owners vote to hold, they have 30 days to buy your share, otherwise the property is sold and your share is paid to you.
- At any time in those five years you can offer your share for sale at the price you and the buyer agree.
Now you can invest in multiple properties!
Property crowd funding creates new possibilities
You may be saving a deposit for a property but you are constantly chasing the market, with prices rising faster than you can save. Now you can put your savings into a share of a property and likely get a higher return on money than bank interest plus the capital growth as well.
With this crowd funding model, you can buy shares in multiple properties or a portfolio of them that are listed as one package. You also get to choose the property!
Your key options with property crowd funding are:
- Residential balanced – properties that will achieve both reasonable cash flow and capital growth
- Capital growth – typically inner city heritage properties that will have a poor rental yield but provide excellent capital growth
- Cash flow – dual income properties or an inner-city apartment let out on the short- term rental market.
Of course, selecting the right property is vital. Stay away from student and holiday accommodation, hotel rooms and the like. Stick to standard residential property or, perhaps, the right commercial one.