Property investment, also known as real estate investment is one of the most profitable ventures for investors to yield great returns. It entails the ownership, purchase, management, as well as sales or rental of real estate. Property investment is capital intensive, and also heavily cash flow dependent, making it a risky venture. This is why many property investors face the dilemma of raising enough capital. There are certain capital raising methods which are easy to achieve and reduces the risk involved.
Common Ways To Raise Money For Property Investment
Below are the common ways to raise money for property investment.
• Private Investors: Private investors are one of the best sources of capital raising for property investment. Private investors are usually willing to take higher risks as they are not answerable to public stakeholders like banks. This also makes them very flexible when it comes to striking deals; as you can set up a profit-sharing deal that suits you. In attracting private investors, there are about five elements which it must possess.
- It must be priced under market: Everyone enjoys having a good deal, as such private investors will most likely not invest in an overpriced deal.
- Your deal must have an upside: The rental income of the property should be capable of going up over time. Show your investors how the property can increase in value, thereby increasing the income they will enjoy.
- It should have an excellent cash return.
- A perfect exit strategy should be in place: This refers to a plan which you structure to return the investor's morning as well as profit.
• Partnership: Partnership is also a good way to generate capital for property investment. Many stay away from this option as they presume it reduces their income. It is, however, a win-win situation in the actual sense. For an investor who needs a large sum of money, you can strike a deal with your partner which will see you do the running around, while your partner(s) is responsible for the greater part of the funding. It is necessary to properly document the agreement however in order to avoid any complexities in the future. Partnering with a company, it will be in your best interest to go into the agreement as a company as well. This will save you from the risk of being the only person with unlimited liability. Many corporate partners that manage investment funds, usually have a lot of cash which they are usually willing to invest in a good investment plan.
• Crowdfunding: Crowdfunding is another way of raising capital for property investment. Using this approach, capital is gotten through the efforts of individual investors, friends and family. This approach uses an online platform referred to as crowdfunding platform. An internet company uses this platform to leverage for greater exposure to source for investors. This company goes out for the purpose of getting rich people, and interested individuals to invest. After finding investors, the company then approves the investors' money for the investment deal it is suitable for.
• Friends And Family: Your friends and family are also easy access to money which serves as capital. Although a lot of individuals feel complacent about this, teaming up with your family and friends to fund an investment saves you the stress associated with other means. You can also establish an interest rate which will benefit both parties, thereby relieving you from unnecessary debt pressure and stress.
• Lenders: In some quarters, lenders like banks and other financial institutions are the most common way of raising capital. Lenders are interested in making a profit, and always avoid ventures with overbearing risks. This makes getting loans from banks quite hard. To be able to secure a good loan, you must have an extensive liquid asset or a strong national income; without which you will likely get a small loan quantum.
Also, when the bank recognizes you as a fully fledged property investor, you will be subject to a more favorable credit criteria. Therefore getting a loan from a lender requires time and developing a good track record.
• Sellers: Sellers too can be sources of capital in their own way. Many of the sellers in the property market are investors, who want to sell their property for certain reasons. It could be to get cash for other investment, or simply because he considers it is the right time to sell. If this is the case, you can strike a deal with the seller in which case he finances the deal. This form of raising capital is classified under creative financing and is popular in countries with a well structured real estate market.
Investment immigration is also a good way to raise capital, leveraging on foreign investors to fund your property investment.
Raising money not just for individuals but for companies as well is a never ending cycle. Often times than not, those with the liquid cash in hand or covertable assets are not the ones with the best ideas of how to invest that money. As a person with sharp eye for opportunities, it is incumbent on you to think things through before choosing the particular means with which you raise your funds.
Although investing in properties is a lucrative venture, it can be highly addictive especially when the money is coming in regularly. It is however important to also be mindful of the properties to invest in. Understand your limit and do not over leverage your capital. One bad investment can result in a financial disaster which is why you should endeavor to assess critically your financial situation before getting funds from a third party. Be sure that the property is not overpriced, so as to be certain of getting the value for your money. Also be sure to avoid investments which will depreciate over time after being affected by the market structure. Finally, you must ensure you make a good profit from any capital raising arrangement you deploy. Do not be on the losing end of a partnership, and take only loans that benefit you in the long term.