Real estate funding tips
Do you need funding for your real estate project?
Real estate investing is capital intensive – we all can agree on this. But even more so, are the returns that can be gotten from real estate investing when bought and managed right.
Barely 3 out of 10 institutional financiers will give their funds for this and thus it gives the impression that there is no hope for getting it funded.
The truth however is that in as much as real estate is a viable wealth creation tool in the hands of diligent and committed investors, there are high risks with it as an institutional financier.
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Strategically speaking, seeking funding might not be in your best interest all the time and if you can get them funded internally and through other means to include Mortgage financing, Building fund, Cooperative contributions or Personal financing then you might have to get support from an institution or group.
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- How to create capital to invest in real estate
Very important to note too is that getting financing for real estate is touchy mostly because there are so many moving parts to include and be added to risks of the construction itself.
With so many checklists and risk mitigations needed for real estate, here are some of the easier reasons why your request for real estate financing will not be approved.
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- Ownership (of the asset or supply chain) is not assured: especially in construction or refurbishment of a property, as the finance seeker it is your prerogative to understand and have enough knowledge to protect the ownership of the property and project in general. Let’s take for example an initiator who is looking to fund the refurbishment of a building maybe with the intention to gentrify the environment or just to refurb the unit. If you cannot show a high level of understanding the process and what the potential risks are, your financiers will not have the comfort needed to release funds to you.
- Opportunity viability: most often, developers and project owners get misguided by people cheering on their initiative and forget that not all of those cheerleaders would commit to the dream of subscribing to it. It’s in a similar way that property investors analyze the options they want to invest in using themselves or counterparts as the baseline for defining that target audience.
A financier will need to see deeper than the surface where you have gained awareness and an affinity for the project but actual subscribers who have shown interest with a commitment of sorts.
- Team composition with required skills: no man, committee or country is an island. Though your front line panel are asking all the questions and giving you pointers of how they are thinking chances are that they are not the final decision makers for the financing – they are just the custodians.
The profile qualifications of yourself and your team will be a considerable factor for whether you will be approved or not. Expect that background checks and inquires will be made into you, your business and past work-life – if there is something notable enough to raise a flag, then it’s most likely to be a No from them. In the event that it’s not and someone higher up enough can convince the decision to give you a chance then you will need to adapt your operating systems to imbibe those measures.
- Profitability of the project: it’s all about the money – financing is done by people who are largely capitalists who know that their money will make more money for them.
So before you go looking for financing, you will need to be 300% sure that the chances of making a profit are cast in stone. Now, this doesn’t mean that you just need to make a profit for yourself, or to pay back the financing; unless you are a charity organization you need to also make a profit for yourself and your business organization.
This is where the importance of sustainability comes into play. The more sustainable that you are the higher the chances that the financiers will want to work with you on an ongoing basis. One thing that financiers enjoy more than making money is saving time and money on initiating an investment cycle.
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If they can be assured that your proposal is good and will work, there will be the silent consideration of ‘Can we keep working with this person?’
If the answer is yes then you are higher guaranteed to get approved, as it means they will have one less reason to rerun financial checks on you and your team’s profile and they can focus on validating the projects only.
Now that you have read this concluding article in the series of How to get financing for your real estate project – do you see how all the parts tie together?
As much as we want to look at real estate investing as a stand-alone cash multiplying model, we will be doing ourselves a huge disservice by that. Real estate investing is a circle or network of many moving parts – all of which come together to create wealth, offer opportunities for passive income and with a well-planned strategy can be the source of your retirement fund.
Thank you for continuing to read the weekly articles.
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You may also download her free ebook on real estate here