So you’ve discovered the ideal project, the numbers add up, and you’re ready to start — with the exception of how to fund it.
If you can’t fully fund your real estate tulum development with your own funds, you have two options: borrow the money or locate co-investors and give them a portion of the earnings. Each has advantages and disadvantages, like with most things in life.
Giving up a portion of the earnings in the form of equity relieves you of the burden of paying interest on the capital, and because you’re sharing in the risks and rewards, the amount you owe the investor at the end of the project will be totally determined by its relative success. On the downside, you’ll need to locate an investor – or investors – who share your excitement for the idea, and they may demand a substantial cut of the profits since they recognize the value of their money to you.
Debt, on the other hand, entails committing to a repayment schedule. The good news is that it maintains you in charge of the project and allows you to factor in capital costs and interest rates in your estimates.
The nature of your project, whether it’s a light renovation, a buy-to-let, or a ground-up development; your personal resources; and the amount you need to finance will all affect the best route.
Property investment has a long history in the UK, and there are a variety of ways for investors to get involved, from running their own projects to investing a few pounds in a crowdfunding platform. You must compete for their attention as a developer.
For the purposes of this post, we’ll assume that investing is the first path you wish to take, thus finding investors becomes the difficulty.
1. Family and friends
The question is usually the first port of call, but asking it can be awkward. Nobody wants to jeopardize a friendship or spark a family feud, so think about how they’d respond if something went wrong down the road.
2. Individual investors
These are usually found through your network, which includes the agents working on the transaction. These wealthy individuals are eager to participate in real estate projects in areas they are familiar with, and once found, it is only a matter of creating a relationship with them. These investors are likely to ask a lot of questions regarding the project and your ability to complete it. They’ll also want a lot of security and a solid return on their investment.
3. Networks of angel investors
There are numerous angel networks available online. Typically, you enter your needs and browse the profiles through the internet. You won’t have any existing connections, and some of the investors on these sites are casual, so you may need to send your plan to multiple networks before getting a response.
4. Family businesses
Professional wealth managers look after an affluent family’s assets and help them develop. They may be interested in property as part of a diversified portfolio, but it’s a tight-knit industry that can be difficult to enter into without the necessary connections.
5. Crowdfunding websites
There are various property-based peer-to-peer platforms on the market, some of which are more established than others, therefore it’s crucial to double-check the platform’s requirements and credentials. Your project will be promoted to its investors if it passes the platform’s credit checks. The risk is that the project will not be fully funded by the deadline, when it will be removed from the platform and you will be back to square one. Rates are likely to be high because the platform must both attract investors and cover its own margins and fees.
We provide loans rather than equity through products such as property development finance, bridging loans, and auction finance at LendInvest. On our comprehensive product page, you can explore lending options for any type of property project.
While there are a variety of investors on the other side of our platform who provide funding, they are at a distance and you don’t have to do the legwork to discover them. All agreed-upon loans will have cash available immediately — there will be no waiting to see if investors will take them up. Rates are competitive and comparable to those that you would expect to pay a bank if it were willing to lend.
The underlying denominator is that you need an appealing and well-thought-out proposition that strikes the correct balance of risk and return for the investor while remaining lucrative and appealing to you. You should expect to put in time and expect a few false starts, especially if you’re looking for a huge amount from one source.