How to Raise Capital for Real Estate & Property Investment

Are you starting a new real estate or property investment project, but funding is your primary concern? 

With our 12+ years of experience at Pluxa Property, we understand that finding the right investor to finance projects is one of the most challenging parts of the real estate market. 

After thorough market research and talking to different successful investors, we have found a few of the best investment strategies for property dealers. 

We will share some of these key strategies with you in this guide.

What is investment capital for real estate and property investment?

Investment capital for real estate and property investment refers to the funds you require to purchase, develop, manage, and maintain property investments. This financing can be debt or equity capital funding coming from various sources. 

What you can do with this capital? Suppose you want to purchase an inhabitable property but don’t have the funds to purchase and refurbish it or extend the property. You start looking for financing options like asking a bank to fund against collateral or private investors against property shares. 

Now, you purchase, renovate, and sell the property and pay back the debts while keeping the excess of your profits in your pocket. 

Investment capital can be used for different purposes such as:

• Property acquisition, 
• Development and construction of new structures or renovating existing ones, 
• Covering operational costs like managing and maintaining properties and repairs, 
• Marketing properties, and 
• Creating an emergency fund for unexpected expenses.

Types of property investment financing options

When starting a property investment business or engaging in the real estate market, you must understand your financing choices. You can group them into two categories: Equity and Debt. 

1. Equity financing 

Equity financing involves selling shares of ownership in the property to investors to raise money. It doesn’t require regular repayment but gives investors a share of the profit through rental income and capital appreciation. 

Here’s how equity financing works:

• In exchange for equity or ownership in the property, investors provide you with asked funds. 

These investors include corporate venture capital, expansion capital, Angel investors, venture capitalists, equity crowdfunding, and private equity.

• Each investor becomes a partial property owner, and they equally share the risks and rewards of their investment.
• Returns earned from the investment, including rental income and profit from the property sale, are distributed among investors based on their ownership percentage. 
• Investors can make significant decisions depending on their ownership percentage and agreement terms.

👉 Learn about the HMO investment type and find the best property-sourcing company

2. Debt financing 

Debt financing is where you borrow money from a lender and pay it back with interest over time. It includes mortgages, bridging loans, and other types of property loans. 

How debt financing works

• You borrow funds from a lender, such as a bank or any financial institution, under specific terms and conditions, including the interest rate and loan repayment period.
• Usually, you keep the property as collateral for the loan, reducing the lender’s investment risk.
• You make regular repayments to the lender, covering the principal amount and the interest.
• Once you clear the loan amount, you gain full ownership and control over the property. However, you may lose part or all of the property to the lender in case of default. 

👉 Check out our guide on how to start your property-sourcing business in the UK

What are the options for raising capital for real estate?

There are a few options for raising capital for real estate investment. You can try the following:

1. Use your savings

It is a great way to invest in properties, as you don’t have to pay interest and have ownership and control over your property. If you have sufficient cash, you can put that into property investment. 

Otherwise, you can also sell an investment property that no longer meets your goals and has your money tied up. 

If you are over 55, you can withdraw part of your pension pot and invest that money in properties. It is popular among individuals investing in buy-to-let properties. 

Refinancing your property is also a great way to raise capital. If you have lived in your home for five or more years, its worth is more than the amount you paid to purchase it. You can use some of that equity as capital for an investment purchase.

2. Bank funding 

Banks offer short-term and long-term loans, home equity loans, and mortgages, which can be great financing options for property investment. Over multiple decades, the top banking lenders in the UK have been Lloyds, Barclays, NatWest, Santander UK, and HSBC.

To obtain bank financing for property investment, you need to meet their eligibility criteria, like having a good credit score and a stable income. You also need to provide detailed information to the bank about the property, including its purchase price, location, and how you want to use it.

You need to provide collateral to support the loan, and for mortgages, a small percentage of the property valuation, usually 25% or more, is asked as a down payment. 

You need to provide multiple documents for mortgage loans. We have mentioned the basic ones below; however, the bank will mention multiple others when applying for a mortgage.

• Proof of identity like a passport, driving license, or any National Identity Card
• Proof of address, like utility bills dated within 4 months of the application date
• Bank statements 
• Evidence of deposits you made towards the property 
• Payslips for employed individuals 
• Tax documents 

For real estate finance transactions, the number of critical documents will be used, like 

• The facility agreement, also known as a funding agreement
• Borrower debenture
• Parent guarantee 
• Charge over borrower’s shares 
• Subordination agreement 
• Management agreement and duty of care agreement

For more detailed information on how to effectively utilize mortgages for property investments, check out our guide on Buy to Let Mortgages: What It Is and How Does It Work?

3. Equity investors

You can ask for investment from individuals and families, private equity funds and corporate investors against equity in your property. They actively co-own and manage the property and provide capital. 

There are multiple steps involved in private equity financing 

• First, identify potential investors 
• Present them with a detailed investment opportunity, growth potential, and risks. 
• Investors conduct individual due diligence. 
• Both parties negotiate and, finally, sign an agreement that outlines the equity amount investors will get and their expected return on investment. 

This strategy helps you raise funds without putting your property as collateral. The only concern is you might not have control over the operations and management of the property as each investor has their say on any decision. Make sure you have a contract with transparent terms and conditions. 

4. Property crowdfunding 

Property crowdfunding is one of the best ways to raise capital for real estate. In this type of financing, several investors pool their funds, which are used to buy a property or lend to developers to finance their property development. It includes both equity and debt financing options. 

Some popular real estate crowdfunding platforms in the UK are:

• HNW Lending: Peer-to-peer asset-based lending, offering secured loans (secured by assets like properties) ranging from £30k to £3m and competitive interest rates
• Simple Crowdfunding: Raise equity and debt finance for land upliftment, titles split, commercial to residential conversion, and multi-home new builds

5. Bridging finance or bridging loans

Bridging finance is the fastest way of getting a loan to secure your property investment, mainly inhabitable, probate, and refurbished properties. Mortgages may not be a good investment for such properties as they take longer to get sanctioned, thus delaying the whole process. 

How does it work?

• Your property valuation is taken.
• Bridging finances provides you 70% -75% of the property value you need to pay the excess amount. 
• There is a solicitor who ensures the legal side of financing 
• Their loan period usually lasts for 1 to 18 months
• You get the loan, renovate your property, refinance or sell it, and pay the loan plus the interest, and keep the profit

But you must be careful about the hidden fees, interest rates, and the default fees. The interest you pay for bridging loans is usually higher than mortgages. 

Here are a few companies offering bridging loans 

• loan.co.uk: Offering bridging loans at competitive rates starting from 0.39% per month and financing up to 100% of the property’s purchase price.
• Precise: Offering bridging loans for standard and Tier 1 refurbishment with rates starting from 0.69% and Tier 2 heavy refurbishment with rates starting from 0.74%. 
• United Trust Bank: Bridging loans are available from £100k to £15m, and a repayment period of 12-36 months

Steps to raise capital for property investment 

Here’s how you can raise capital for property investment deals.

1. Evaluate how much you can fund.

You must start by evaluating how much fun you have invested in a property. It isn’t just the cash in hand or the bank but all your equities that can generate funds. For example, if you own other properties, then refinancing a mortgage can unlock more equity. 

2. Understand what you want in an investor. 

Think about what you expect from an investor. Is it only capital or expert guidance and time to manage your property? 

For capital, you can take out loans from banks, crowdfunding platforms, etc., but for expert guidance, you need angel investors, venture capitalists and other equity investors. 

In fact, you can apply for startup loan from the UK government. 

Here’s how:

To apply for a government-backed Start Up Loan in the UK, first visit the Start Up Loans website. Before applying, ensure you meet the eligibility criteria: you must be a UK resident, 18 or older, and have a business that has been trading for less than 36 months (or plan to start one).

Prepare a business plan, as this is a crucial part of your application. The Start Up Loans program offers free support and guidance to help you write your plan. Once ready, apply online for a loan amount between £500 and £25,000.

The application process involves a credit check. If approved, you’ll receive:

• The loan funds
• Up to 12 months of free mentoring
• Ongoing support for your business

The loan terms include a fixed 6% annual interest rate, with repayment periods ranging from 1 to 5 years. There are no application fees or early repayment charges. Remember, this is an unsecured personal loan, so carefully consider your ability to repay before applying.

Discover the various types of rental property loans available for investors, personalized to help you finance your next property venture effectively

3. Start networking 

Improve your network on social media platforms like LinkedIn, Twitter, Facebook and Instagram, and attend local events. 

There are around 5M potential investors who actively uses social media to research financial decisions.

Here’s how you can leverage your LinkedIn profile to get investors’ attention:

1. Profile Optimization

Keyword-rich profile Ensure your profile highlights your expertise and uses industry-specific keywords. This increases visibility to potential investors searching for opportunities in your sector.

For example, founders mentions on their profile that they are seeking for investors:

Content Strategy

Regular value sharing Regularly post valuable, sector-specific content to demonstrate your knowledge and insights.

Active Engagement

Comment thoughtfully on investors’ posts to get noticed. This shows genuine interest and can lead to meaningful interactions.

Network Expansion

Group participation Join relevant LinkedIn groups and contribute to discussions. This expands your network and showcases your expertise to potential investors.

Here’s a screenshot of multiple investor groups on LinkedIn:

Targeted Outreach

Advanced investor search Use LinkedIn’s advanced search features to find investors in your industry. This helps you identify and connect with the most relevant potential funders.

Relationship Nurturing

Value-first approach Focus on adding value before pitching your business. Build rapport over time through meaningful interactions and shared interests.

Showcasing Progress

Company updates Share company achievements to showcase growth and potential. This demonstrates progress and can attract investor interest.

Event Participation

Virtual networking Participate in virtual LinkedIn events where investors might be present. This provides opportunities for networking and learning about investor priorities.

4. Structure the deal

When you ask lenders for financing for your property investment, you must give them precise details on the real estate deal.

It includes the property location you want to invest in, your target market, and the expected return on investment. Here are some tips to structure your investment deal:

1. Create a detailed proposal outlining key aspects of your property investment:
2. Provide location, size, condition, and unique features.
3. Present local real estate trends and growth projections.
4. Define intended tenants/buyers and your strategy to reach them.
5. Showcase breakdown costs, expected revenues, and cash flow timelines.
6. Outline long-term plans for the property.
7. Identify potential risks and mitigation strategies.
8. Present expected ROI with supporting data.
9. Highlight relevant experience and skills.

Can I raise investment against a property I own in the UK?

Yes, you can raise investment against a property you own in the UK. However, make sure you register your property with The Land Registry, which is usually called the “absolute title”. This Government agency maintains a public register of title to land in England and Wales. Whenever an intending purchaser or an investor wants to check the title of your property, a quick search of the public register will confirm the following information. 

• The extent of the land concerned by reference to a plan 
• The property owner’s identity 
• The title of the property 
• Any benefits enjoyed by the property and burdens attached to it 
• Financial charges affecting the property 
• Leases to which the property is a subject 

You can use the property as collateral and collect debt from banks and other lenders. Otherwise, sell a part of your property to Angel investors, Venture Capitalists, or private investors and raise capital. In the case of a debt, when you pay back the whole amount, you get your property ownership and control back. 

How can I increase the value of my investment property?

Yes, you can increase the value of your investment property by investing funds in renovations and upgrades. You can set higher rents when you add extra furniture or offer a luxurious living space. Use your property as a buy-to-rent property or a rent-to-rent property. 

In the Buy to Rent property case, you can earn higher rental yields as you are the sole owner of the property. But when you rent your property to a property investor and allow them to use it further as short-term rentals, you only earn a fixed rent throughout the rental period, no matter how much profit the investor makes. 

The best way to increase your property value is the BRRRR strategy. Here, you buy an inhabitable property at a low market price, invest funds in renovating and converting it into a luxurious property, use it for rent, pay off all your loans with refinancing, and reinvest in another property. 

How Pluxa Property can help you maximise your return from property investment

As a leading UK property investment company,we make the whole property investment process easy and hassle-free. Our experts will consistently guide you through the process. 

We know every property investor has different goals and requirements. Our team works closely with you to understand them and provide a personalised investment strategy. The aim is to ensure you get maximum return on your property investments. 

On our platform, you can find the best properties in good locations with higher potential for capital appreciation. If you aren’t ready to buy a property, you can rent it and earn higher returns from short-term rentals. However, we always try to negotiate the best prices for properties so you can buy or rent them at a lower market price. 

Find the best UK BUY2SA property deals right here.