One of the most common challenges I find many of my audiences and Clients appear to experience is how to go about raising start-up capital for their property portfolio or their new business venture. I often get asked about how we initially raised seed capital to start our portfolio. The truth is that we went looking for it wherever we could – “Ask and ye shall receive”.

I was recently mentoring a private Client and we went through this very procedure of establishing where potential funds could come from. It is amazing how creative a person can become once you start to expose the various alternatives.

One area that we took advantage of at an early stage of building account portfolio and we have helped many other investors do the same, is to tap into the funds of people that you know.  This can include friends, family and even other investors who have surplus cash and are looking for a specific return on investment.  If for example your brother has £10,000 sitting in the bank account making 3% per year, you could approach him and ask him what he would consider to be a better rate than he is getting in the bank right now.  If he then said to you, a rate of 8% would be good, then assuming that you have done your calculations correctly for the properties that you are investing in, and that paying him at 8% return will work for you, then you can make him the following proposal.

A balloon payment strategy where he lends you the £10,000 for a given time period, let’s assume 12 months and a simple interest rate of 8%.  This means that you will borrow the money and at the end of a 12 month period you will pay him back the full amount (balloon) plus the interest owed. In this case you would payback £10,000 plus an additional £800 interest.

Interest only payments work in a similar way except that instead of paying the interest back at the end of the year, you pay the interest over a period of the year as monthly installments.  In the above example this would be £800 divided by 12, which is £66.66 per month.  At the end of the 12 months you would still payback the £10,000 has agreed.

Capital and interest payments involve you paying back the interest plus the capital every month of 12 months and any outstanding balance is then paid at the end of the 12 month period.

It is vital to know where you are going to use their money. If you don’t have a purpose for borrowing it – then don’t.