At some point in time, we will either think we don’t have enough money to start, continue or we may well run out of money before reaching our ‘big hairy audacious goals’ of financial freedom, lifestyle and choice.
So, that’s that then is it?
…Well, this episode would be a short if it was. So, what’s the answer then?
…Become your own bank or finance broker!
I can’t work miracles and conjure cash from thin air unlike the Central Banks! What I can suggest is some ways in which you might be able to raise that additional funding for your property plans and goals under your own steam.
Here are 12 ways to become your own bank or finance broker.
Here we go!
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Transcription of the show
At some point in time, we will either think we don’t have enough money to start, continue or we may well run out of money before reaching our ‘big hairy audacious goals’ of financial freedom, lifestyle and choice.
So, that’s that then is it?
…Well, this episode would be a short if it was. So, what’s the answer then?
…Become your own bank or finance broker!
I can’t work miracles and conjure cash from thin air unlike the Central Banks! What I can suggest is some ways in which you might be able to raise that additional funding for your property plans and goals under your own steam.
Here are 12 ways to become your own bank or finance broker.
Here we go!
Property Chatter
Welcome to the property voice podcast helping you to navigate safely through the world of property investing, get the lowdown and updates, insights and outcomes on all matters property with a splash of entertainment along the way, the property voice, a voice to trust among the crowd. Now, let's get started with your host, Richard Brown.
Hello, and welcome to another episode of the property voice podcast. My name is Richard Brown. And as always, it's a pleasure to have you join me again on the show today. Well, it's getting close towards the end of the year, I'm going to take a bit of a break I mentioned last week, and I was thinking to myself, What am I going to share with you. And I guess the most obvious thing to share at this point in time, it's nothing to do with you here and Christmas and, and goal setting and things like that, well, it could be could feed into it. And was really, I'm in the process of writing my next book. And the next book I'm writing or the book I'm currently writing is about property financing, do need to kind of pull my finger out and get that done. So that will be on the radar for 2021. By the way, listening later. And I'll tell you perhaps how you can be one of the first people to hear about that. But so they forget 50 ways to leave your lover, today is 12 ways to become your own bank or finance broker. Yeah, 50 ways to leave your lover does sound a bit more attractive as a title I know. But you know, this one's much more, as isn't it really as property investors and developers. Because here's the thing, as investors and developers, you know, in property, it's a very capital intensive
sector activity, if you like or business to be involved in and, you know, it takes a lot of effort and time and obviously money to raise the funds to be able to get into property and then to maintain the growth and scale that we want to achieve some of the goals that perhaps we want to achieve. And so I guess when you starting out, it might be a bit daunting, how do you raise your first deposit? And even if you've got your first deposit, how do you keep going? And perhaps if you're a bit further down the track, you might have all your money tied up in investments and not how do you grow? You know, from that point of view, so call that sort of a turnaround type of situation or an opportunity to grow from that point. And so raising money becomes a real, you know, core competence, a key skill that we need to get good at. Certainly, if we've got big ambitions, big goals that we want to aim for. I mentioned goals
in the sort of towards year-end, China type of picture. So I think you know, it's timely. And I thought, well, there's a chapter in the book, that's going to be, you know, becoming your own bank, essentially. And here's a sneak peek really, I suppose, of what's going to go in that book. And, as I mentioned, 12 ways, I'm going to going to rattle through actually, some of them, they break down into four categories. So the 12 ways to become your own bank or finance broker break down into four separate categories. And they are what are called self-generating personal equity raising, using a company and self brokering, or self broke up fundraising. There are four categories. So let me elaborate. So let's kick us off. Let's start looking at self-generating, what can we do ourselves to become our own bank or finance broker? In other words, well, I've got three in each of the four areas. So that's a neat, neat way to get to 12 of course. So the three I'm going to talk about under self-generating our savings and bonuses, a garage door loft clearance, and alternative income streams. So they are pretty much what they sound like. So the very first one savings and bonuses and that's pretty much the first one everybody knows about most people start with kind of put some money aside
from either regular income or additional income, whether it's commissions bonuses could actually lead to inheritances as well here. But you know, it's basically money that we've got, can we strip out money from that to invest in property.
And often it's slow, it's boring, it's virtually risk free. But it also means we don't owe anybody anything as we as we go along. So it's quite neat in that respect. And it might help if you become a dealer, not only a diligent saver, but sometimes an extreme saver. And you might have heard of the fire movement or fire community, which stands for financial independence and retire early. And in that community, there's people in their 20s looking to retire by their 30s. And in order to do that, they need to save extremely hard, significant double digits of their income 50% above sometimes so it can be done and you don't necessarily leave
To have all the material things, for example, and just set aside everything. And if you just squirrel away that money and you put it you've invested wisely, then it's, you know, it's possible to, to grow it. And also then to live off the fruits at some point. So saving and bonuses and similar sorts of thing is the first one and got a couple of bonus tips for some of these. The one, I guess the bonus tip really for savings or bonuses is really about was kind of two things. One is to minimize any fees, transaction fees, management fees, in terms of managing and savings. So just be careful who you give it to. And other words, keep the fees low, sort of 1%, you know, on your own on the total fund value is typical, that'd be good and prudent cost, you can get a bit less than that you're doing well, if you're paying a bit more than that. Yeah, travel, have a look at it, have a look at what you pay, and who and who's charging you and what you're getting for it. And then the other thing really that's relevant here is tax. And so obviously, if you make if you get a return, whether it's capital, or interest return on your money, then you want to try and retain as much of it as possible. So perhaps look at things like
tax wrappers, such as an ICER, for shelter. So that's number one, savings and bonuses. Number two, I've labeled a garage clearance or loft clearance. I don't mean it literally although it could be applied, literally it's stuff you've got hanging around the house or the flat or where you are. And very off just open your eyes. Just In fact, I challenge you to do that I did it myself earlier, I was kind of wandering around, I was looking, I've got boxes around me, I've got stuff hanging around in drawers, you know, there's just electronic devices kind of accumulating, gathering dust. I remember I've got
I was gonna say what it's not it's the iPod, isn't it? Yeah, the iPod that plays songs, I don't listen to iPod anymore, you know, and it's just gathering dust, it is probably losing value actually in the drawer now and not being utilized. So. And the thing is, when I started out in property, I actually did all this, I cleared a load of stuff out. At that point in time, I had a bunch of CDs, I rip them all. So they're all digital. And then I sold them and sold them on eBay, in particular solomont car boot sales, not just CDs, a bunch of stuff just didn't really need anymore. So it's a good excuse to kind of have a bit of a clear out of all your old tat. And, you know, do the garage. Sorry, yeah, do the garage repair out, obviously, but then have a car boot sale or put stuff on eBay. Yes, it's a bit tedious. Yes, you know, might be a bit cold right now to do this, literally, you know, in terms of a car boot, but you know, you can get some money on that and just clear the way it just feels good, by the way, to do that. And you raise maybe hundreds of pounds rather than 1000s of pounds, potentially, depending what you've got. But, but there we go. So
that's, that's the second one garage door or lock clearance. The third one is basically so the first two are all about effectively utilizing our existing resources. The first one was about income. And the second one was about possessions. And the third one really is to generate additional income, such alternative income streams. And if saving is about delayed gratification with our money, then having a side hustle or a second job or a business on the side in some way is the equivalent for our time. And potentially I know-how depending on how we set things up. You know, I remember I cast my mind back to when I was a student working for KFC to get some extra money in and I had a grant, I had a full grant, which I know dates me but I had a full grant. So the grant was my income. And then the part-time job with KFC be a supplement to the income. So that's to two-income streams right there. And then I won't go into the fact that was overdrawn with the bank. And that was potentially a third one, but probably not a very wise one actually. But that was a reality at that point in time. And as I move forward, obviously with my life I've had side hustles second jobs, multiple businesses, alternative income streams, and they've all been utilized at various points in time to generate additional funds to invest in my portfolio. And a little bit random, perhaps this one, but it kind of related, we could probably slot this into the savings of bonuses or the alternative income stream one. But a bonus tip here is the rent a room scheme. So if you basically accept someone living in your home, that could be a permanent lodger, or it could be occasional guests Airbnb style, but under the rent a room scheme HMRC will allow you to earn seven and a half 1000 up rather up to seven and a half 1000 pounds per year tax-free. So that's pretty good. And obviously, there's a compromise to be made as there is with all of this basically. And the compromise in that case, of course you'd have some somebody else in your home. So I know it's not for everyone, but you know, we're trying to you know,
gotta fix all the world's ills here, I'm trying to find a way that you can generate additional income to invest in property. So yeah, hear me out, hear me out on that one. So they're the three under the sort of self-generating category, if you like, the next category up is what I call personal equity raise. So we, you know, we're going to become our own venture capitalists here, I guess. And the first one is equity release. And, and a lot of people who start out in property, they might not, they might have a bit of savings, but they didn't have significant amounts of capital. And potentially one way in which people do this is worth equity in their own home. And sometimes that's if they move home, they perhaps don't put all of the equity that they released from their former home into the new home, and then they got, you know, a bunch of cash, they can invest, they can remortgage release cash, essentially, release money from your own home investment is what I'm driving at here. And now, obviously, if you're borrowing and it's your own home, then you need to service that debt. So you need it, you need a solid income, strong affordability measures etc, to be able to service that debt. So just be careful about owes not to overstretch yourself. Now on the flip side, of course, you'll be able to make money from the money that you released. So that will help offset some of the extra cost involved. But equally, don't forget, if you re mortgage your home, typically, it's a capital repayment mortgage, whereas, you know, so therefore, you'd be paying the capital each month. So the cash flow might not be as attractive or compelling as you might think.
And one little bonus tip, and this one, they're not that common these days. But if you do some research, you can do some digging, you can find what's called offset mortgages or equivalent names. And the idea of an offset mortgage is that basically, you have a facility limit. So you could borrow up to a maximum amount. And the idea being that you could dip into it and dip out of it at various points in time, equilibrium actually brings down the cost of your mortgage overall, because technically, you've put savings aside in the meantime. So it's quite, it's quite flexible, it's quite good. In that sense, it's quite a creative product, one of the better ones I would say, and but the idea of mentioning here as a bonus tip is that you could potentially drawdown from your home on a temporary basis. So I'm going to talk in a minute about being a drawing down
in a boring if you like, generally speaking on a more permanent basis. But if you have an offset mortgage, you can pay back so you could do a project, perhaps receive money from a sale or refinancing and then pay it back. So that's quite a neat way of making sure you don't get too over committed on your own home. So look at that one.
That's the first one. The second one is basically a second charge or further advance lending. Now, you could apply this to your own home, take a you know, apply a second child will serve is certainly a further advice. But you know, potentially, on your own home, it could be an investment property, it could be a could be a second home or a holiday home or something like that. And you know, you might have a mortgage on it already, if you got enough equity, enough headroom to be able to put a second charge in place or further advance, you can do that either with the same lender or alternative lender. And the key distinction between a further advance and a second charge, in my mind, at least, that they can be interchangeable to some extent. But a further advance is usually more long term and therefore more permanent. So you know, it's going to be harder to get rid of, whereas a second charge, you could apply that or you could link it to bridging loan. And so in that case, you could perhaps, you know, have a second charge for the purposes of bridging on a project, complete the project, get your money back and then pay off the second charge. So it's quite nice in that sort of sense. And I don't know if you do know this, but you can actually take second charge bridging finance to fund a property project and have security against your own home. So not many people actually know that's possible. It is actually only possible through regulated lenders. So it's not every lender in the marketplace will do that. So look out for that one. Second one second challenge or further advance lending. Then the second one, I meant to say second one. The third one is alternative asset refinancing. So this might not apply to everyone. And you know, there's something for everyone in this podcast recording today. But when you're clearing out that garage or the loft, just keep your eyes peeled, won't you because you might find a bit of fine art or vintage wine, an antique or a classic car even, you might have missed that. Hopefully the classic car, we might be looking in the garbage under a sheet does sheets or something like that. But if you find something like that, then there's actually specialist lending market. And some lenders will actually give you lending with that kind of asset security as well. And it's a beats going down to the pawnbroker. I guess it's a modern day pawnbroker in reality, but there's a couple of people who do that sort of thing. So if you happen to be fortunate enough to have something value, whether it's art or wine or cars or something similar, sometimes you can actually have this, this sort of alternative asset refinancing. So they're the three if you like in terms of equity raising.
The next category, the third category I wanted to talk about was under the banner of using a company. And so there's a few things here that kind of grouped under that heading. The first one is pensions. Now, you might say to me, Well, you don't need a company to have pensions, Richard, well, that's true. But in order to access those pensions for the benefit of your property investing and developing journey,
this is the kind of pension I'm talking about, which is predominantly, I was gonna say, it's the best kept secret in the property community, but I think the secret is getting out. And that's a SAS pension, which is s s, s, which stands for small self administered scheme. And that's kind of a small company pension scheme for your business. So if you've got a property business, or in fact, they're not a property business, you could potentially set up a SAS, which is your own company pension scheme. And here's, here's the thing. First of all, you can put contributions into it, either through the company or for the individual member contributions, or combination. You can also transfer in your old pensions, that's where I'm going with this. Because, you know, I was chatting to someone the other day, and he worked, I think, four years was it, I think four or five years with a company, I'm not going to mention the name about 10 years ago, that was it just contributed to the scheme that the company contributed, he contributed. And we were chatting about we look at the look at a SAS because I'm looking at people becoming their own bank, advising him and I said, Why don't you just check out your old pensions, and he went away. And he did that and came back, he said, it's worth 90,000. So four years of contribution, 10 years ago is grown into a fund value transfer value of 90,000. So that's actually if you put it into a SAS that's then usable, at least some of its usable in terms of property, I'm not gonna go into too much detail, because there's a lot of rules and regulation. But if you do want to know more, actually, Richard Parker, you might have heard on this podcast in the past, he was on the game full time in property series, he wrote a book recently called SAS pension legacy. So just look that up in on Amazon, if you want to know more, there's it's very practical. That's the reason why I like that particular book. And then I'll tell you much more about that. But as a bit of a bonus tip, all personal and company contributions into any pension are in fact, tax deductible. Obviously, it is included into a SAS as well. So in fact, HMRC could be your banking partner as well, in reality, so there you go patients, the first one SAS patient, in particular, you can do you can invest in property for a sip as well, but it's more restrictive. So, you know, I'm not taking you down a certain path. But you know, you can invest in sips, but by all means, look into it. But SAS is perhaps a little bit more flexible, as a number of people in my community are looking at sasses at the moment.
The second one in this category is an intercompany loan. Now, if you happen to have a company, because you've got a business, or you are a contractor operating for a service company, and maybe you've accumulated cash and profits over the years, then one way in which you can utilize those is, you know, in a very tax efficient way, or excuse me, is through lending, lending from the business to your property, a separate property investment or trading company. And that would be called an intercompany loan. So, there's a number of benefits of doing it company to company. And I'll come on to another one in a minute, and you'll see the difference. But if you do an intercompany loan, you can choose to charge interest, you don't have to charge interest. So depending on what your personal circumstances are, you might choose to do that you may not choose to do. But if you've got money lying around in the company, you don't want to extract it and perhaps pay tax on dividends or salary. For example, you could lend it to your property company, and make use of it and hopefully get a better return on investment than the cost of the interest that you choose to charge yourself. So that's the second one. The third one is directors loans. Now a lot of people think about directors' loans is putting money into the company. And Yep, we all do that, basically. But you can also take money out of the company through for in the form of directors loans. And now a directors loan is not as advantageous from a tax point of view as an intercompany loan. An intercompany loan is seen as something as what they call an arm's length transaction, even if the companies are related, but if the if there's a director's loan, and it's now seen as a benefit in kind, it becomes a bit complex, you know, from a tax point of view,
as well. So you probably need to take some professional advice in terms of directors loan and also the difference being really that an intercompany loan can operate for a longer period of time.
Directors loan, if it's overdrawn, are you taking money out the company, you owe the company money, then you know, if you owe, if you take it out for a considerable period of time, then you're going to pay some tax, there's going to be a real cost associated with that. So the bonus tip is to make sure you don't take it out too long with the directors loan and take some professional advice I suggest. So they're the three under using a company.
And the final category is what I call self broking, self broking, fundraising, or becoming a self broker. And the categories here are, the first one is what basically. So this is we are going out and raising money if you like from an external source. And the first one is friends and family. Well, that's, that's, you know, a place that most people would, you know, naturally think of doesn't always work. Do your family like you do friends like you? Do they have money in the first place? You know, do they trust you in this in this business of property. It's not always straightforward. And but I do have a saying, actually, and the saying goes like this, the closer the source of funds is to our heart, the lower the rate, the lower the interest rates, it's not always true. But generally, if there's a bit of love involved, hopefully, it's worth a few percentage points off on the right. So you know, just whoever you ask him, perhaps they'll do your favor in that sense, but maybe they won't. But you know, but at the same time, that if they if they're prepared to stump up money to help you along your journey, and let's face it, our family often are our biggest supporters, you know, sometimes our friends, they want to see us succeed, they want to see us achieve our goals in life. So, you know, can't harm Canada have a conversation, at least, the bonus tip in this respect is, is really to treat this seriously. So don't just say I want to get into property, give me some money and go and blow it, you know, and treat it as a commercial arrangement with friends and family, take it seriously have a clear business plan or investment case, you know about what you're going to do with it. Always take really good care with other people's money, always take care of other people's money more so than your own, I would suggest, especially friends and family, because they might be precious to them, they may love you. But, you know, ideally, I think they want to see their capital back. And the final point is, whatever the relationship, put it in writing, seriously put it in writing. So there's a bonus tip on that one. And that's the first category. In that sense, then the second one is peer to peer and crowdfunding. Now, technically, you know, that's kind of through a lender. It's usually through a platform. And the reason it's in this list is it you don't always need to go through a broker or an intermediary to get access to peer to peer lending or crowdfunding equity raising. And that usually breaks down in that way peer to peer is usually debt, crowdfunding is usually equity. And, and you know, lots of everyday people and not so everyday people, sometimes you need to be a sophisticated investor, especially with equity.
You know, giving or receiving equity, you often have to be high net worth or sophisticated to get into the crowdfunding side of it. Peer to Peer, not necessarily, but sometimes, you know, is becoming more regulated, it's good to know what you're doing. And, but there's people looking for a decent return on their money. And maybe they could give it to you, they'll give it to you, but you know, vendor, avancer, etc, subject to. But the bonus tip here is really, the key phrases is present yourself as being either bankable and or investable, so bankable with a peer to peer investable into the crowdfunding. And yeah, we could talk a little bit more about what that means. But essentially, the best thing to do there, in fact, the tip really, is to sign up to the platform as either a lender or an equity provider, if you qualify. And see, have a look on the inside, see how other people are doing it. And then just pick a mix and cherry-pick if you like, the best of the presentations. And obviously, don't do anything that's not you. But bake it into your own presentation and put your best foot forward is what I'm suggesting that sense. So that was peer to peer and crowdfunding. And you probably been waiting for me to say this for the whole of the episode so far. And I think we're 23 minutes in is private financing and joint ventures? Ah, yes, of course, the holy grail of the property investment community,
a property networking meeting near you, you probably hear people are going looking for investment. And his, By the way, just a quick piece of advice on that one, probably a bonus tip hadn't really thought about sharing this until this moment. But in the room of property investors, do you think you're going to find the majority of people looking to invest? Or people who are looking for investment? Spoiler alert, it's probably something like 2% of the room who are looking to invest and 98% of the room when looking to you know, receive investment. So the odds of actually attracting investment but not impossible. And not you know, they're not zero, but they're, you know, not always high
Let's say, and you might get lucky, you might walk into your first networking meeting the very first time have a coffee with someone and they become your joint venture partner. And then you write to me and go, Richard, I proved you wrong. And that's okay. I'm just trying to be realistic about it. So,
and maybe part of it's even down to my own mindset, because in my own case, it took me half a decade, five years, to raise my first 250,000 in terms of private investment. Whereas in the second half of the decade, the remaining five years, obviously, I've raised over 4 million. So I did a bit better, obviously, in the last five years than I did in the first five years. And that says something to you probably, it tells me something that I didn't do so great in the first five years. And you know, there's a few reasons for that. And I didn't really know what I was doing. I didn't have a strong track record, I was building my credibility. And maybe I didn't have the same, you know, the right belief, even the sort of money mindset even. And I guess the, you know, the thing about
private financing joint ventures, it can be a real game changer, it certainly has been for me, particularly if you can access private finance, to for development, financing, or equity, it can be a significant game changer, and what you can achieve in this business. So it's worth persevering. It's worth perfecting, it's worth, you know, sticking to it really, which has things the same as perseverance, but there we go. And the bonus tip here, now this one, you know, just, this might sound counterintuitive, but if you go chasing cash, it will run away from you. And yet, if you relax and let cash come to you, it will flow towards you. Now, I'm obviously gonna leave it at that, that we're going to go into great detail. But just think about that, if the more you chase it, the more elusive it becomes. And if you just become more the oak tree and attract it to you, and there's various ways to do that, then usually it flows towards you. And obviously, you know, it coupled with things like having a track record, having credibility, knowing what you're doing, you know, is always useful. So there we go. So there's the three in terms of the self broking or, you know, fundraising part of it, that really completes the list, actually. So that's what I wanted to share with you today. And this is a kind of mentioned the book deny property financing book, I'm in the process of writing, yes, it's slow going, but it's gonna be worth it. Okay. I promise you, it's gonna be worth it. And you know, you can see from what I've just shared with you, this is going to form a fee for like the heart of the of one of the chapters, which is all about being your own bank. And I always talk about people that I engage with, whether it's mentoring it, for example, you know, about trying to be our own bank and exploring all of these particular angles. Because if you can, if you can, you know, raise money in one, two or three of these areas, then it's going to be a lot easier for you, frankly. So hopefully, that's been useful for you. And if you're interested in perhaps hearing about the book, when it's funny to be published, it's going to be 2021. Now, I was hoping it was going to be this year, it's going to be 2021. And then you can always drop an email. If you drop an email to admin to thepropertyvoice.net and asked to go and then you book release list, you're going to be one of the first people to hear. So it also encouraged me to kind of pull my finger out and get the book written. I'm really looking forward to getting this one out, because it won't be just your vanilla bite Aleck financing book, let's put it that way she possibly can tell from what I've shared with you in this certain particular episode. So there we go. Um, I guess all that remains for me to say is, as usual, the show notes are going to be over the website, thepropertyvoice.net So head on over that there'll be a transcription included. And, and obviously any resources I've mentioned, which is probably Richard Parker's book and how to get on the reading list, so head over there. And I guess Aside from that, it's another week is gone. And thanks so much for listening once again this week on the positive voice podcast. And until next.
Thank you for listening today. Now head over to thepropertyvoice.net. For more inspirational content and get updates through our mailing list. Join us next time on the property voice podcast and if you enjoyed the show, please don't forget to rate us on iTunes.
That's all from me this week, remember if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you! The show notes can be found at our website www.thepropertyvoice.net
Thanks very much for listening again this week, so all that left to say is ciao ciao!